Homeowners Look To Tracker Deals Amid Expectations Of Base Rate Cut

Tracker rate mortgages are becoming increasingly popular, new research shows.

In figures released by the Council of Mortgage Lenders (CML), it was revealed that the proportion of homeowners selecting such products rose over the course of this year as people look for offers which follow the changes made to the base rate of interest. During February just over a third (35 per cent) of borrowers were indicated as taking out this kind of loan, up from the 33 per cent recorded in January. Such a figure also shows an increase from the 14 per cent of consumers who opted for tracker rate deals in February 2007.

Meanwhile, fixed-rate deals were shown to be less attractive as consumers are expecting the Bank of England’s monetary policy committee (MPC) to lower the base rate of interest in months to come.

Should the MPC opt to cut interest rates consumers on a tracker rate mortgage will find that their level of monthly mortgage payments falls. The extra funds made available may help to manage other kinds of financial demand such as loan repayments, credit and store cards and household bills.

Over the course of the month, the number of loans for house purchase fell by 3.5 per cent to stand at 49,000. Meanwhile, gross lending stood at 25 billion pounds, down from the 25.9 billion pounds recorded in January and 26.6 billion pounds from February 2007. It was suggested that levels of loan approval for house purchase are set to continue experiencing a fall.

Michael Coogan, director general of the CML, said: “The trend away from fixed-rate products continues as expectations of further Bank base rate reductions, 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 Bank of England’s credit condition survey made clear. We expect this process of further tightening in lending criteria to continue in the second quarter as lenders respond to the challenging market conditions.”

Further research by the council indicated that remortgaging accounted for just under half (45 per cent) of all mortgage lending, a figure which has remained unchanged since the start of this year. With this proportion also shown to be the highest level recorded since March 2005, the CML stated that remortgaging will “remain relatively strong” over the course of 2008 as a number of homeowners are set to come to the end of their fixed-rate and discounted mortgage deals.

Those homeowners, meanwhile, who are worried about their ability to make mortgage repayments as 2008 progresses might wish to consider getting a loan. In applying for a loan, consumers might find that they are able to address repayments quickly and effectively. Such a low-rate loan could also assist consumers concerned about managing their finances as a whole over the course of this year. Earlier this year, a study carried out by moneysupermarket indicated that 84 per cent of Britons are anxious about how they will be able to get to grips with money.

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