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High proportion of capital repayment mortgages in Q1 2011

A record high 77% of residential mortgages introduced during the first quarter (Q1) of 2011 were capital repayment mortgages, according to Paragon Mortgages’ Financial Adviser Confidence Tracking (FACT) Index.
 
The proportion of repayment mortgages was up from 71% recorded during Q1 2010 and has been increasing since the third quarter of 2007 when it hit a six-year low of 57%.
 
Conversely, interest-only continued its downward trend. Just 14% of mortgages introduced during the quarter were interest-only, the lowest proportion since Q1 2004 and down from a high of 28% recorded during Q3 2007.
 
John Heron, Paragon Mortgages Managing Director, says: “FACT shows that residential mortgage lenders have been clamping down on interest-only since the start of the credit crunch and the decline of this market shows no signs of slowing down. The Financial Services Authority signalled the demise of interest-only through changes proposed in the Mortgage Market Review and it appears that lenders are positioning their businesses in anticipation of regulatory changes.”
 
The FACT Index also revealed that there has been a strong increase in the number of residential mortgage applications submitted during Q1.
 
Looking forward, intermediaries expect to introduce a greater level of mortgage business during Q2 2011.
Many more mortgage borrowers are taking out fixed rate home loans, up from 49% in Q4 2010 to 59% in Q1 2011, with the average proportion of tracker mortgages falling from 46% in Q4 2010 to 37% in Q1 2011, supporting the argument that borrowers are anticipating an interest rate rise later this year.
 
Heron added: “A number of positives emerged during the quarter – there was a solid improvement in the number of mortgages introduced during the period and it is encouraging that intermediaries believe business levels will rise further during the second quarter. Meanwhile, it is clear that residential borrowers are starting to position themselves for an increase in interest rates and are taking precautionary action.”

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