Homebuyers played the mortgage market to their advantage during 2007, and are looking to capitalise on future rate cuts…

The Spicerhaart Financial Services monthly survey reveals a shift in buying over the last six months, with homebuyers switching from fixed to tracker products.  In December, variable mortgages rose for the third consecutive month, accounting for over 27% of all deals, an increase of over 350% since December 2006, (see graph 1).

Steve Cox, Operations Director of Spicerhaart Financial Services, comments: “Consumers rightly predicted that interest rates were set to fall, and switched to variable products accordingly.  Though the Bank of England did not drop the base rate today it is clear that borrowers believe another cut, to match the 0.25% in December, is imminent.

“The huge increase in tracker products across the year signifies the change in the market, and we expect this figure to increase further into 2008.  It is highly unlikely that interest rates will rise this year, so people are choosing to capitalise on this and ride out 2008, rather than lock themselves into anything. 

“The number of customers taking out longer term fixed rate mortgages has remained relatively stable across the past three months. It is the 2 and 3 year fixed rate products which have seen the drop.”    

Graph 1. Proportion of borrowers opting for variable mortgages since December 2006.

The survey also shows that many sectors of the market are still strong.  The number of buy-to-let buyers remains high at 14% in December, just 1% lower than at its peak in September, and was steady throughout 2007 (graph 2). 

Similarly, first time buyers have been, and remain, active in the market.  They accounted for 42% of consumers in September, when the figure peaked, and in December one in three of all purchasers were first time buyers.         

Steve Cox comments:  “Despite many reports that the market has cooled it is clear that confidence in 2007 was high in many sectors of the property market, and this bodes well for 2008.  It is especially important that the number of first time buyers is strong, as they are a vital driving force in the housing market and will help to stimulate it.  Some figures have dropped slightly, but this is a natural reaction to the current climate and also attributable to a seasonal lull.

“The market is changing, however.  The last three months have seen a switch towards remortgaging, demonstrating that there are still plenty of opportunities for consumers to explore the best ways of structuring their finances. 

“Though 2008 will be a tough year for the property market, consumers should be encouraged by both 2007’s activity and low interest rates, which are likely to be cut further in the coming months.”

Graph 2.  Proportion of buy-to-let purchasers since December 2006