Since the dramatic fall in the UK base rate to 0.5 per cent, and the subsequent drop in the cost of personal borrowing, demand for variable contractor mortgage products has never been stronger.

This is the view of one of the leading mortgage brokers in the UK, John Charcol. According to the firm, more than 75% of the mortgages it arranged in December 2009 were on variable rate terms. This figure has risen for the seventh month running.

And it’s not just new contractor mortgages that have been affected by the massive shift towards variable rate deals. The figures for remortgages have dropped off significantly as borrowers yield the financial benefit of staying on their existing, and often lucrative variable rates rather than looking for an alternative mortgage elsewhere.

As monthly mortgage repayments drop homeowners, and particularly those with large loan-to-value deals, are given some much needed breathing space  as the recession and unemployment continues to bite.

According to a Charcol spokesperson, it will take a big rise in the UK base rate for fixed rate mortgages to become competitive against existing tracker and variable rates. Charcol have advised that those who want the security of fixed rate payments should look towards five-year, rather than two-year terms when considering value for money, although lots of issues should be considered in each specific case.

Many more people are expected to take advantage of variable contractor mortgages and economists do not expect to see an increase in interest rates in the short-term.

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