Remortgagers reap the rewards

Robyn Hall

September 23, 2016

More than one in ten (11%) homeowners who remortgaged to reduce their monthly repayments in August made monthly savings of over £500, according to data from LMS – delivering an annual boost to their finances worth almost a quarter of the average UK salary.

The 11% who registered these savings in August is an increase of two percentage points from July (9%) and four percentage points compared with June (7%) to the highest level seen this year.

It comes as remortgaging homeowners reap the rewards of rising house prices and continuing cuts to interest rates from lenders, fuelled by the base rate drop to 0.25% at the start of last month.

The result of remortgaging for this group of homeowners is a minimum saving of more than £6,000 in their annual household budgets: the equivalent of almost a quarter (23%) of the average UK national salary of £26,260.

This extra financial breathing space gives them the chance to consider topping up their savings, paying down other debts or simply benefit from having more spending power from month to month, at a time when inflation is at its highest point (0.6% in July and August – CPI) since December 2014.

The Bank of England’s decision to lower the interest base rate in August has also had a noticeable impact on homeowner attitudes, according to LMS’ findings. Of those homeowners who remortgaged last month believing interest rates will change, nearly four in five (79%) thought rates are falling: a staggering 20 percentage point increase from 59% in July. In comparison, just over one in five (21%) homeowners believe interest rates are rising, compared to 41% in July.

Analysis by LMS also shows more than half (55%) of homeowners who remortgaged in August did so because they had come to the end of their current deal. This was an increase of nine percentage points from a year earlier, when 46% who remortgaged in August 2015 did so for this reason.

Compared with a year ago, those whose existing deals expired last month and who remortgaged as a result will have found rates significantly lower: an average three year fixed mortgage at 75% loan to value (LTV) was 52 basis points (bps) cheaper than it was in August 2015, while the average two year fix at 90% LTV was 62 basis points cheaper.

In contrast, the average standard variable rate has fallen less dramatically year on year from 4.48% in August 2015 to 4.33% in August 2016.

Just over a quarter (26%) remortgaged in August to increase the size of their loan, a two percentage point drop from 28% in July and a four percentage point drop year on year from August 2015. This may be a sign of caution from homeowners about taking on extra debt at a time when the country’s long-term economic outlook following the vote to leave the European Union is still unclear.

Andy Knee, chief executive of LMS, said: “Evidence points to a strong outlook for remortgaging, which is currently outperforming other areas of the mortgage market due to a climate of low rates and a price war between lenders. The prospect of freeing up more than £500 a month is surely enough to make anyone re-evaluate their current deal: an additional £6,000 a year can go a long way to ensuring the future stability of households across the country by providing extra funds to save, invest or simply get by from month to month.

“The Bank of England’s decision to lower the base interest rate has profoundly impacted the expectations of homeowners when it comes to future rate changes. More people than ever believe rates will fall further, which would be good news for first time buyers and remortgagers alike, even as they benefit from what is already record-low pricing.

“Looking ahead, the recent drop in the percentage of remortgagers increasing the size of their loans may serve as an omen of caution while the nation’s long-term economic outlook remains unclear. Homeowners may think twice about borrowing more when they remortgage; but in the meantime, there are plenty of other incentives to do so and the market remains resolutely open for business.”

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