Trackers prove popular as fixed rate take-up plunges

Tracker mortgages were popular during February while the take-up of fixed rates plunged to its lowest level since March 2005, says the Council of Mortgage Lenders.

The amount of borrowers choosing tracker rates in February rose to 35% from 33% in January and 14% last February.

The proportion of borrowers choosing fixed rate deals fell to 52% in February from 57% in January and 74% last February.

February gross lending totalled £25bn, down 3.5% from £25.9bn in January and 2.3% from £26.6bn in February last year.

The CML says floating rate products have become more attractive compared with fixed rates as consumers expect further interest rate cuts in the coming months.

But the trade body says these mortgage figures typically relate to applications taken out several months ago so they do not reflect the shrinking availability of mortgage products and frequent repricing in recent weeks.

First-time buyers in February typically borrowed 88% of the property’s value, unchanged from January and 3.33 x their income, compared with 3.32 x income in January.

Loans for house purchase declined in volume to 49,000, down 3.5% from 50,900 in January, and by 5.1% in value to £7.5bn.

Remortgaging made up 45% of all lending in February, which is unchanged from January and the highest share since March 2005.

Michael Coogan, director-general of the CML, says: “The trend away from fixed rate products continues as expectations of further cuts in the Bank of England base rate, probably starting this week, have increased.

“The February figures relate to completions of transactions started several months ago. More recently, there has been consistent evidence of tightening in lending criteria which will lead to shrinking pipelines of new business as the recent BoE credit condition survey made clear.”

He adds: “We expect this process of further tightening in lending criteria to continue in Q2 as lenders respond to the challenging market conditions.”