Number of borrowers taking trackers declines

The latest Mortgage Purchase Index from Legal & General has revealed that despite a succession of Bank Base Rate cuts, the number of borrowers taking out variable products fell 17% in Q4 2008.

However, while the number of residential borrowers opting for a variable deal fell to 29%, they remain the product of choice for the majority of buy-to-let investors, with 56% of landlords plumping for a tracker.

The study also found that the average two-year fixed rate fell to 5.9% from. 6.38% in Q3, while the average three-year fixed rate dropped to 6.30% from 7.41% the previous quarter.

Stephen Smith, director of housing at Legal & General attributed the declining popularity of tracker rates to the fact that so many products have been withdrawn. He added: “The cuts in the Bank Base Rate are a mixed blessing for the mortgage market. Clearly, cheaper rates will mean some people avoid payment difficulties, and therefore repossession, but overall repossession number are expected to increase in 2009. Rates are now at such spectacularly low levels that the incentive to remortgage for borrowers may be vastly reduced.

“If the ‘go to’ rate which a customer is going to pay at the end of a deal period is under 4%, then customers might just decide to stay there. We think, as a result, that the remortgage market will take a big hit next year.”