The Holy Grail of remortgaging is to be able to lower your loan-to-value (LTV) bracket and reduce your mortgage payments in the process, and with record low mortgage rates almost guaranteeing the latter, a rising number of homeowners now choose to remortgage at the end of a fixed term rather than revert to their lender's standard variable rate (SVR).
Data from UK Finance highlights just how quickly remortgaging activity is escalating, with the figures ramping up in July: remortgaging activity totalled £6.7 billion during the month, 12% higher than both the preceding month and July last year. This equates to 36,800 remortgagors, up 7% on June and 10% higher than a year ago, showing just how many more people are opting to take the plunge.
This comfortably surpasses house purchase activity, too, at least on a monthly basis. A total of 30,400 first-time buyers borrowed £5 billion in July, down 16% and 15% respectively from June, while 32,800 home-movers borrowed £7.1 billion, down 10% and 9% month-on-month.
June Deasy, head of Mortgages Policy at UK Finance, said that "remortgaging strengthened in July and reached its highest level since January, with customers attracted by borrowing rates that are at or close to their historic low point. The increase in activity in July means that, over the last year, the number of people remortgaging has been at its highest since 2009."
Record low mortgage rates
Many people are undoubtedly driven by the low mortgage rates currently available, with our own figures showing that the average two-year fixed mortgage rate now stands at 2.22%, a drop of 0.01% on a monthly basis and a new record low. The average five-year fixed rate has also fallen, this time by 0.02% to 2.77%, another fresh low, so it's little wonder so many are remortgaging.
However, others could be driven by their desire to escape a potential base rate rise, which arguably won’t cripple borrowers, but could still add extra expenditure that homeowners don't want to pay, particularly when faced with rising inflation in general. Given these concerns, it's no wonder that so many are looking towards the long-term market, with there being a clear shift towards five-year mortgage deals in recent months.
So, if you're coming to the end of a fixed mortgage term, why not see what kind of remortgage are deals available?
And don't even think about reverting to your lender's SVR. Figures from the latest Moneyfacts UK Mortgage Trends report show that those coming to the end of a two-year fixed rate mortgage would have had an average rate of 2.72% when they fixed in September 2015, yet with the current average SVR standing at 4.60%, reverting could see your rate ramp up by 1.88%, which could have a significant impact on repayments.
Indeed, based on a £200,000 mortgage, average repayments currently stand at £5,400 per year or £453.33 a month (based on a 2.72% mortgage rate), yet if you reverted to an SVR of 4.60%, your annual repayments could practically double to £9,200 (or £766.67 a month), adding an extra £313.34 to your monthly outgoings.
If, however, you remortgaged to the current two-year average rate of 2.22%, you could see annual repayments of just £4,440 and monthly outgoings of just £370, saving over £83 a month from your current deal and almost £400 on what you'd have to pay if you reverted. Even remortgaging to an average five-year deal with a rate of 2.77% would only add a negligible £140 to your annual repayments, equating to just £11.67 per month, which could be a small price to pay for half a decade of repayment security.
So what are you waiting for? If your fixed mortgage term is almost at an end, start comparing the best remortgage rates to see if you can reduce your outgoings.
Sam: 18th Sep 2017 15:08:00
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