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17% fewer residential mortgage borrowers taking variable rates

Average two-year fixed rate was 5.90% (vs. 6.38% in Q3); average three-year fixed rate was 6.30% (down from 7.41%);

65% of residential borrowers chose a fixed rate compared to 63% in Q3;

29% of residential borrowers chose a tracker or variable rate compared to 35% in Q3;

43% of buy-to-let borrowers chose a fixed rate and 56% chose a tracker/variable rate;

Average residential LTV was 60%, whereas for buy-to-let it was 71%.

Stephen Smith, Director of Housing at Legal & General said: “Fixed rates for Q4 look a lot cheaper than they were in the summer, with both short and long-term rates having come down quite significantly. With average loan-to-values for residential borrowers at around 60% what we are probably seeing is the result of rate drops for ‘low-risk’ borrowers, which is the only area of the market that remains competitive.

"Higher LTV borrowers have been shut out for now, either by having products removed from the market or by having rates raised so much that the SVR is the only cost-effective option. Of course, many tracker products have been withdrawn, which has contributed to the 17% drop in people taking variable rate mortgages.

”The cuts in the base rate are a mixed blessing for the mortgage market. Clearly, cheaper rates will mean some people avoid payment difficulties, and therefore repossession, but overall repossession numbers are expected to increase in 2009. Rates are now at such spectacularly low levels that the incentive to remortgage for borrowers may be vastly reduced.

“If the ‘go to’ rate which a customer is going to pay at the end of a ‘deal’ period is under 4%, then customers might just decide to stay there. We think, as a result, that the remortgage market will take a big hit next year. And will such low rates stimulate borrowing and prompt reluctant participants back into the housing market? Well maybe they would if the mortgage funding was available, but at present it simply isn’t.”

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