The proportion of mortgage borrowers opting for variable rates has risen by almost 50% in the past three months, according to Legal & General.
Fixed rates remain the most popular type of mortgage, but recent forecasts of base rate cuts have increased the uptake of trackers.
Legal & General’s latest mortgage purchase index shows 35% of borrowers opted for a variable interest rate between June and August, compared with 24% in the three months to May 2008.
Stephen Smith, director of housing at Legal & General, says fears of further rate hikes by the Bank of England helped boost the popularity of fixed rates in the first half of 2008, but believes borrowers have now adapted to the changing situation.
“Trackers will have attracted greater attention as forecasts of base rate cuts become more prominent,” he says.
“The popularity of variable rates has also perhaps been boosted by the number of borrowers sticking with their lender's standard variable rate when they came to the end of a deal rather than remortgaging straight away. This approach of sitting on the fence is a sign of the times and would have been unheard of a year or so ago.”
Fixed rates are still the most prominent mortgage type, chosen by 63% of borrowers. However, the majority of buy-to-let borrowers favoured variable rates, with 55% preferring this type of mortgage.
Legal & General also observed falling prices for two-year fixed rate deals, but says three, five and ten-year products have become more expensive.
Analysts suggest the recent rise in swap rates, caused by the collapse of US investment bank Lehman Brothers, could lead to rising fixed rate mortgage costs in the coming months.
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