Demand for 5-year fixed rate remortgages has fallen to its lowest point proportionally since July 2017, conveyancing service provider, LMS found.
Five-year fixed rate remortgages fell to 37% of the market in February – down from 45% in the previous month.
The decline has been driven by more consumers opting for cheaper 2-year fixed rate deals to balance out the cost of November’s base rate rise.
The proportion of borrowers choosing fixed two-year remortgages has increased to 24% in February, up from 22% the month before. This is the highest level of two-year fixed rate remortgaging in seven months.
2-year fixed remortgages are available with an average fixed rate of 2.35% in February.
Nick Chadbourne, chief executive of LMS, said: “Consumer interest in fixed 5-year deals has dipped as many borrowers opt for the lower rates on offer from two-year products.
“This is a significant shift from what we’ve seen in recent months, suggesting the popularity of five-year deals may have peaked.
“The move towards 2-year deals is likely a result of borrowers offsetting the cost of November’s base rate increase by switching to a shorted fixed rate period when they remortgage.
“Few borrowers will want to risk a variable rate mortgage with potential increases to the base rate likely to be on the way later this year, but with incomes squeezed, demand for longer term fixed deals has slipped.”
However Robert Owen, managing director, mortgages and bridging, United Trust Bank, found the news unexpected.
He said: “I’m surprised- I would’ve expected to see an increased demand for longer-term fixes. Looking ahead there’s speculation and indication that interest rates will rise in the next six months
“I would anticipate one or two increases this year and I would further say the product to counteract that would be longer-term fixes, but the length is dependent on the advice the person receives.”
Homeowners are now prepared to remortgage more frequently to get a better deal. In February 2017, 17% of borrowers expected to remortgage again in eight years’ time, but one year later, just 10% of borrowers expected to wait this long.
Meanwhile, 39% of borrowers are planning to refinance in five to six years’ time, up 11% from February 2017.
The long-term shift towards more regular remortgaging can be seen in the surge in total remortgage lending which reached a 9-year high in January, increasing by 20.3% year-on-year
Nick Chadbourne added: “In the short-term, reports of Bank England’s upcoming rate increase is putting pressure on homeowners to move away SVR and remortgage sooner rather than later.
“The longer term increase in lending is due to borrowers being more aware of the potential savings on offer through remortgaging. There is now much more information on the deals available to borrowers from brokers as well as price comparison sites.
“The record high volumes of remortgage seen at the end of 2017 illustrates the ongoing challenge of developing a smoother, more efficient process.
“At LMS, we’re continuing to strive to deliver improvements with innovative technology such as ECOT. These improvements will provide all stakeholders within the conveyancing process more efficient methods of transacting.”