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Popularity of variable rate mortgages soars

Popularity of variable rate mortgages soars

Category: Mortgages

Updated: 19/11/2009
First Published: 18/11/2009

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The popularity of fixed rate mortgages has continued to decline, with only a quarter (26.3%) of borrowers opting for them in October.

According to the John Charcol Index, it is the smallest market share enjoyed by fixed rate products since November 2008, and is a dramatic decline from their peak of 83.1% just four months ago in June.

With the outlook for interest rates being little changed over the last month, Drew Wotherspoon of the mortgage adviser said an even higher proportion of borrowers had been choosing variable rate mortages , in most cases a tracker.

"The Bank of England's announcement this month of an extension of the quantitative easing programme by a further £25 billion is another indication that base rate is unlikely to rise in the next few months," he added.

"Even if longer term fixed rates don't get much cheaper than those currently available at just under 5%, there seems a good prospect that borrowers on a variable rate will be able to benefit from rates more than 2% lower for the time being and then switch to a similarly priced fixed rate later."

Meanwhile, there was also a further increase, albeit a small one, in the proportion of house purchases completed last month.

First time buyer activity as a percentage of total purchases showed a marked increase, rising to 15.3%, up from 10.4% in September.

"Although many potential first time buyers are still shut out of the market because of the lack of an adequate deposit or failing to meet lenders' onerous credit score requirements for high loan to value mortgages, several lenders have improved their pricing and availability of mortgages to 85% and 90% over the last month," added Wotherington, "so there are some encouraging signs for these would-be first time buyers."

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