Discount mortgages market shrinks 72%

12 July 2010 / by Rachael Stiles

The number of discount mortgages available has fallen considerably in three years, despite the fixed rate and tracker market growing in the same period.

Discount mortgages have becoming increasingly scare, falling 72 per cent, while there are 33 per cent more fixed rate mortgages and 36 per cent more tracker mortgages to choose from than there were three years ago, according to research by Defaqto.

Every sector of the mortgage market suffered when the property crisis hit, but some corners of the market have started to recover since then, with competition returning to the fixed and tracker arenas.

But when it comes to discount mortgages, borrowers currently have a choice of just 166 products, compared to 1,890 fixed and 816 tracker deals.

Currently, many borrowers are sitting on their lender’s standard variable rate once their fixed or tracker deal comes to an end, because, until a better deal becomes available, SVRs are proving to be a competitive option.

David Black, banking specialist at Defaqto explains that while lenders’ standard variable rates remain so competitive, there is little incentive for them to offer discounts: “There are significant differences in the Standard Variable Rates (SVR) being charged by lenders and given that discounted mortgages tend to be linked to the SVR this is a key reason for their decline in popularity.

“Lenders with competitive SVRs have little incentive to offer discounted mortgages because profit margins on their fixed and base rate tracker mortgages are better.”

The current average for a standard variable rate is 4.77 per cent, ranging from 2.50 to 6.08 per cent.

© Fair Investment Company Ltd