Buy-to-let loans rose dramatically at the end of last year, accounting for a surprising 39.55% of all mortgages in December 2007, compared with just 17.9% in December 2006.

Meanwhile, borrowers taking out loans for house purchase declined sharply from 35.94% in December 2006 to just 13.18% in December of 2007.

The figures, of course, do not mean that homeowners are suddenly becoming landlords – simply that fewer owner occupiers took out mortgages or moved house, due to uncertainty in the market, while investors continue to buy and remortgage existing properties.

This illustrates the fact that landlords see falling prices as an investment opportunity while owner occupiers only see the potential for negative equity.

This is a curious feature of the property market since falling house prices matter less to owner occupiers who have to have somewhere to live. They remain largely unaffected by a drop in house prices, compared with landlords who can see all their equity wiped out if they buy at the wrong price and there is a sharp drop in the market.

As the property market has cooled, so homebuyers have become increasingly wary of moving house and more are settling for a straight remortgage. The proportion of borrowers taking out residential mortgages fell most sharply between November and December 2007, when they dropped 17.09% from 30.27% to 13.18% in December.

During this same period remortgages increased by nearly 7% from 20.54% to 27.13%.

As borrowers wait for interest rates to move back down, the proportion of borrowers opting for two-year fixed rate mortgages fell by 30.61% (December 2006 – 46.80%, December 2007 – 16.19%) as homeowners opted for variable rate trackers and discounted deals.

Citywire 16 January 2008