Tracker mortgages on the up

Thursday, 20 March 2008 12:00 AM

The present malady in the UK housing market is encouraging first-time buyers to plump for tracker mortgage products, according to the Council of Mortgages Lenders (CML).

The Bank of England has reduced interest rates twice in recent months, down to 5.25 per cent following cuts in December and February, with further falls expected in the near future.

This prospect has encouraged those looking for property, especially first-time buyers, to look for tracker mortgages to take advantage of the falls.

"In the normal course of things, first-time buyers have tended to be more attracted to fixed-rate mortgages recently than variable-rate mortgages," said CML spokesperson Sue Anderson.

"But at the moment the situation is complex because there is some anticipation that rates may fall again this year so there is greater appetite than what there would normally be for tracker-rates, which will take advantage of rates if they do fall further."

CML research finds fixed-rate loans represented 57 per cent of loans in January, a reduction of 20 percentage points from 77 per cent in June/July 2007.

"I think it is very difficult to pick a one-size fits all solution here," continued Ms Anderson.

"People need to recognise their own attitude to risk and the risk of rates moving either in their favour or against them, and the extent to which they want absolute certainty about their level of outgoings."

Confidence in the market has also been shaken by the ongoing credit crunch, which has seen lenders withdraw high risk products, limiting the choice open to consumers when looking for a mortgage.

This has been caused by funding problems in wholesale financial markets, which has made liquidity scarce among lenders as banks refuse to lend to each other.

As such, borrowers need to be careful when selecting a mortgage product.

"In terms of sensible things people should do, they are all the obvious things. Research the market - know what's actually available," explained Ms Anderson.

"There are lots of ways of doing that, including the Financial Services Authority's (FSA) comparative tables and widely published sources on the web from various commercial providers.

"Knowing the product range that is out there is obviously important for borrowers so that they can assess whether the person who is advising them is pushing them towards a product that looks suitable for them within the range available."

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