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February 14, 2008

Sharp fall in fixed-rate mortgage take up

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by Kay Mitchell

Sharp fall in fixed-rate mortgage take up

Research from brokers John Charcol has unveiled a significant decline over the last year in the amount of homebuyers taking out fixed-rate mortgages.

At the start of last year, fixed-rate deals made up around 69% of the market following sustained interest rate increases by the Bank of England as homeowners tried to protect themselves from further increases.

However, the figure fell to 33% last month as homeowners opted for variable products to take advantage of potential cuts in interest rates.

The research mirrors that from Andrew Mortgages Services who said tracker products proved to be popular during January with 35% of new borrowers arranging mortgages on this basis.

A tracker mortgage rate moves in line with interest rates so monthly payments could go up or down (within one month) depending on how interest rates move.

It has been revealed that Alliance & Leicester has withdrew its entire range of fixed-rate deals with Portman Building Society and Nationwide saying it is reviewing its products. Other lenders including Skipton Building Society and Kent Reliance have removed some of their leading fixed-rate products.

John Charcol also established that the take up of interest-only mortgages are in decline. While nearly half of all mortgages taken out were interest-only during the period of high interest rates in 2007, this fell back to 40% in January 2008.

Katie Tucker of John Charcol said it is crucial now that the borrowers who went interest-only to help their affordability in 2006 or 2007 revert back to capital repayment, or overpay accordingly as interest rates have started to reduce.

Last week, the Bank of England cut interest rates from 5.5% to 5.25% with further cuts widely expected this year.


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