Tracker mortgages increasing in popularity

Buy-to-let property investors are increasingly searching for tracker mortgages, according to Legal & General's (L&G) seventh quarterly report in the Mortgage Purchase Index series.

The report, which examined trends based on thousands of mortgage applications on the company's Mortgage Club between June and August 2009, revealed that 30 per cent of buy-to-let mortgages were variable rates, equivalent to a 13 per cent increase compared to the second quarter.

Residential borrowers are also shifting towards tracker products because their searches made up 17 per cent of inquiries compared to 12 per cent recorded in the previous quarter.

"There has been a distinct shift towards tracker and variable rates by landlords but the move is less pronounced amongst residential borrowers," commented Stephen Smith, director of housing at L&G.

He explained that the proportion of variable rate buy-to-let mortgages arranged through the company's Mortgage Club doubled during the quarter from 13 per cent to 30 per cent.

However, past data from L&G indicates that landlords have traditionally favoured some sort of variable rate mortgage and that the sharp rise that has been recorded is from a low starting point, added Mr Smith.

For example, during the first quarter of 2008, there were more than 60 per cent variable rate buy-to-let mortgages.

"To a certain extent, the low-interest rate environment may be creating an illusion that the economy is 'back to normal' and that the recession is nearly over. In fact, bank base rates at this current level are far from normal and things will not go on like this forever," warned Mr Smith.

Meanwhile, Abbey has announced that it has lowered fixed-rates on its products by up to 0.11 per cent effective from October 7th, meaning borrowers can now enjoy even cheaper mortgages.

Available through Abbey and Alliance & Leicester branches, the mortgages can be obtained at 70 per cent loan-to-value (LTV) for a two-year deal on a homebuyer product and 85 per cent LTV for a three-year deal.

Those looking for remortgage and homebuyer products can also benefit from a new two-year tracker loan available at 70 per cent LTV at a rate of 2.94 per cent.

Explaining the reductions, Nici Audhlam-Gardiner, director of mortgages at Abbey, said that many people are keen on securing fixed rate deals now in light of the historically low interest rates.

"And in what is traditionally a very popular time of the year to purchase a house, we expect that these reductions to our fixed rate product range will help more people find an affordable mortgage," she said.

Elsewhere, Ray Boulger of leading UK mortgage broker John Charcol has said that competition in the mortgage market is increasing as variable rate mortgages continue to look attractive to consumers.

His comments were made as the Bank of England's Monetary Policy Committee voted to keep interest rates frozen for another month.