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Fixed rate borrowing dips

Fixed rate borrowing dips

Category: Mortgages

Updated: 15/01/2010
First Published: 15/01/2010

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The popularity of fixed rate mortgages dipped in the final quarter of 2009 as the threat of an increase in base rates eased, new research has revealed.

According to Paragon Mortgages, 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.

By contrast, base rate tracker mortgages increased from 33% to 45% of all cases handled by brokers during the period.

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.

"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," said John Heron, managing director of the mortgage provider.

"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 accounted for just 18% of cases during the fourth quarter, the lowest proportion of total business since the third quarter of 2004.

Repayment mortgages increased from 69% of mortgages in the third quarter of the year to 70% in the fourth quarter, the sixth quarter of the past seven to witness a rise.

"The use of capital and interest, in preference to interest only, is being driven by a more conservative and prudent approach, as well as better affordability due to low interest rates," Heron added.

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