Fixed rate mortgage popularity dips
The popularity of fixed rate mortgages dipped in the final quarter of 2009 as the threat of an increase in base rates eased, research from Paragon Mortgages has revealed.
Paragon's Financial Adviser Confidence Tracking (FACT) Index showed that the proportion of fixed rate cases introduced by mortgage brokers fell from 62% in the third quarter to 46% in the final quarter of the year.
This was the second consecutive quarterly fall in fixed rate business, after two quarterly increases in the first half of the year.
Conversely, base rate tracker mortgages increased from 33% to 45% of all cases handled by brokers during the period. FACT, a panel-based survey of mortgage brokers, found that discount rate mortgages accounted for 6% of all cases, whilst capped rate and cashback only cases accounted for less than 3% of business between them.
John Heron, Paragon Mortgages' managing director, says: ‘We saw the proportion of fixed rate cases rise substantially in both the first and second quarters of the year, which is understandable as the Bank of England base rate had tumbled and borrowers wanted to lock themselves into attractive deals before the rate started to rise again.
‘However, the rates attached to fixed rate deals are currently less attractive and borrowers increasingly opted for tracker deals during the latter half of the year, particularly in the final quarter.'
In terms of repayment type, interest only mortgages fell to their lowest proportion of total business since the third quarter of 2004, representing just 18% of cases during the fourth quarter.
Repayment mortgages increased from 69% of mortgages in the third quarter of the year to 70% in the fourth quarter, and the proportion of repayment mortgages has increased for six of the past seven quarters.
Heron adds: ‘The use of capital and interest, in preference to interest only, is being driven by a more conservative and prudent approach across the whole industry - as well as better affordability due to low interest rates.'