Variable rate mortgages popular in low interest rate environment

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by Kay Murchie

According to mortgage broker, John Charcol, variable rate mortgage deals are proving to be extremely popular in the current low interest rate environment.

The Bank of England has held interest rates at the historically low level of 0.5% since March 2009 and many economists do not expect rates to increase in the short-term.

As a result, homebuyers are opting for a variable rate mortgage and John Charcol has revealed that the proportion of variable rate take-up rose for the seventh month in a row.

It said that 81% of the home loans it arranged last month were variable rate deals.

The attraction of variable rate deals has also been reflected in remortgaging figures - which have remained at low levels as homeowners opt to stay on their variable rate deal rather than searching for an alternative deal.

Not only have low interest rates benefited those who are remortgaging but it has also led to a severe drop in monthly mortgage repayments for many - therefore fighting of the threat of repossession.

Ray Boulger, of John Charcol, comments: “With the average difference between the fixed rates and the initial rate on the best trackers around 1.5% in favour of trackers, it will currently take a substantial rise in Bank rate for a borrower who takes a tracker to be worse off than one who opts for a fixed rate.”