Resurgence in 5-year remortgage deals

Michael Lloyd

June 6, 2018

Demand for 5-year fixed rate remortgages has bounced back to hit 47% of the total remortgage market in April – the highest proportion in six months, conveyancing service provider LMS has found.

April’s resurgence is a significant increase from the previous month when 5-year fixed rate deals made up just 36% of the remortgage market. Demand for 5-year fixed deals is also 13% higher than April 2017 (34%).

This growth in popularity has been driven by an increase in borrowers switching from 2-year deals to longer-term deals as lenders provide more competitive offers to attract long -term borrowers.

Nick Chadbourne, chief executive of LMS, said: “The popularity of 5-year fixed rate deals rebounded in April, having dipped in the first three months of the year. Lenders are eager to attract longer-term business which has created a competitive landscape for customers.

“This has ensured 5-year average rates have remained relatively flat month-on-month. As more borrowers seek independent advice when remortgaging, the market is reacting quickly to the shifts in headline rates.

“5-year fixed rate remortgages will always be popular when borrowers are seeking financial security. Many consumers are now opting for these deals to ensure they have certainty and stability through the potential economic and political upheaval of the next few years.”

The average rate for 5-year fixed remortgages only increased by 0.01% month-on-month to reach 2.91% in April  which was well below the increase in the average 2-year fixed rate.

The 2-year fixed rate has risen 0.04% month-on-month to 2.43% in April – up from 2.20% in October. This is the highest 2-year rate since September 2016, as lenders have amended rates to reflect the base rate rise.

The proportion of borrowers consulting an independent mortgage adviser or broker when remortgaging also hit a record high of 78% in April – increasing from 72% in March.

The proportion of remortgagors who expect a base rate rise this year has declined to 77% – the lowest level in seven months, down 4% month-on-month.

However, expectations of an increase in the base rate are still significantly higher than they were in April last year when only 46% of borrowers believed there would be a rate rise in the year ahead.

Chadbourne added: “After hints of a rate increase earlier in the year, sluggish economic growth discouraged the Bank of England from raising the base rate.

“Yet more than three quarters of borrowers still believe another base rate increase will happen at some point in the next 12 months.

“The surge in borrowers playing it safe by locking in longer term fixed-rates when remortgaging is understandable when the direction of the economy is so difficult to predict.

“Despite poor overall growth figures, unemployment and inflation are both falling – offering a very mixed, confusing economic landscape.”

The average remortgage loan amount hit a record high in April of £175,000. This represented a 9% increase on March’s average of £160,000 and a 10% rise year-on-year. Property prices have only risen 1% year-on-year leading to higher loans to value ratios.

The term of a remortgage, as a three-month rolling average, increased to 58 months in April – up from 56 months in March. This is the longest term length since July 2016.

Chadbourne said: “The average loan size jumped to a new peak in April as consumer take larger remortgages.

“With comparatively slow house price growth this month, LTV ratios have also increased. To balance the higher LTV ratios, the average term length has increased to the highest level in 21 months.”

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