Is now the best time ever to remortgage?
There are many examples in history of when a combination of events or circumstances, when taken together, create a unique environment for a particular period in time. At the moment, we are in a period of historically low interest rates, there are more products available to remortgage customers, more options available for Interest Only borrowers and the first tranche of Help to Buy mortgages are coming to the end of their existing deals. One could be forgiven for calling this a ‘perfect remortgage storm’!
According to the latest CACI1 statistics, the value of remortgage applications increased by 60% in August 2015 compared to the same period a year earlier, following a 33% increase in July compared on the same basis. Whilst first time buyer and home mover applications have also increased over this period, it appears that the remortgage market is running ahead.
Looking at the latest numbers for July and August this year, the value of remortgage applications increased by 33% and 60% respectively compared to the same period in 2014, showing that the biggest increase in percentage terms is definitely remortgages.
Interest rates on the rise?
Bank Base Rate (BBR) hit 0.5% as long ago as March 2009 and, for most of the six and half years since, the majority of industry experts have been wrestling with the question of when, not if BBR will start to rise. Whilst recent speeches by Mark Carney2, the Governor of the Bank of England and the Bank of England’s Chief Economist, Andy Haldane3, gave differing views, the case for when we can expect a rise has not yet been made with any certainty, although remortgage activity would suggest most borrowers are anticipating the next move in BBR to be upwards.
More choice and cheaper deals
Increased competition as lenders look to secure market share, combined with the low interest rate environment, is driving this and there is no doubt that it feels like borrowers looking to remortgage have never had it so good.
Interest Only options
Since the recession, the market for customer-led Interest Only solutions has stagnated. There are borrowers who may have taken out an endowment in the 1980s or 1990s and now face a shortfall. The first sizeable wave of these is expected to appear in 2017/184, when endowment mortgages sold in the 1990s reach their peak period of maturity.
Another group took Interest Only mortgages in the early 2000s and may not have a suitable repayment strategy. They may, however, have built up equity through house price growth but moving to a full capital repayment product is likely to create a payment shock which may not be palatable or affordable.
Since launching our part and part Interest Only proposition, offering borrowers who are currently on full Interest Only the flexibility of starting to pay down their loan in a manageable way, we have seen that over 80% of applications have been remortgages.
Help to Buy (HTB) remortgages
The Government launched its HTB Equity scheme on 1 April 2013 and in the first 27 months (to 30 June 2015), 56,4025 properties were bought under the scheme. The majority of these, 46,113, were first-time buyers and this represents 82% of total sales. The average (mean) purchase price was £216,030.
In the last quarter of this year, there will be around 8,0006 Help to Buy mortgages coming to the end of their deal and looking for a more attractive product, particularly as they are likely to have built up some equity.
The Big Opportunity
The uncertainty around interest rates, greater choice, cheaper deals, Interest Only customers looking for help in terms of repayment plans and shortfalls, and more and more Help to Buy deals coming to an end have all combined to create a unique opportunity for both borrowers and intermediaries as the remortgage market hots up. There may have never been a better time to help borrowers achieve their aspirations of living in the home that they want with the best possible deal.
1Copyright CACI Ltd 2015 – source weekly Mortgage Applications Reporting Service (MARS).
2Mark Carney from Lincoln to Lothbury: Magna Carta and the Bank of England - (www.bankofengland.co.uk/publications/Pages/speeches/2015/832.aspx)
3Andy Haldane at the Portadown Chamber of Commerce, Northern Ireland: How low can you go? – (www.bankofengland.co.uk/publications/Pages/speeches/2015/840.aspx)