Fixed Rate Mortgages Decline
Tracker rate mortgages have been extremely popular in February, according to the Council of Mortgage Lenders borrowers selecting fixed rate mortgage deals decreased to 52 per cent, in fact the lowest since March 2005. In the other hand tracker rate mortgage acquisitions increased to 35 per cent, from 33 per cent in January. The CML reported that floating rate mortgages are becoming ever more appealing compared with fixed rate mortgages due to the current financial instability.
However the amount of deposit home buyers put down hasn’t changed significantly. In February first time buyers typically borrowed 88 per cent of the property’s value, unchanged from January, and 3.33 times their income, compared with 3.32 in January. Home movers typically borrowed 71 per cent of the property’s value, up from 70 per cent in January, and 2.97 times their income, unchanged from January.
Michael Coogan, the CML director general said:
The trend away from fixed rate mortgages 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.
Individual lenders are having to balance consumer demand with service considerations, as many of those active in the market are seeing higher levels of applications than they can deal with in the wake of the overall tightening in supply of funding to the market.
While lower short-term interest rates help a little, we continue to urge the Bank of England to use more broad-based and flexible measures to increase liquidity levels in the UK market so that firms have sufficient funding available to match consumer borrowing demand in 2008.
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