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 CACI 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.
Martin Richardson, Director of Business Development at Leeds Building Society, takes a look at what might be driving this uplift.
It's really interesting when you look at what happened in the first two quarters of 2015 and compare it to the same period last year. Despite the introduction of MMR in April 2014, the CACI1 data shows that the value of mortgage applications in Q1 and Q2 of that year were broadly flat. First time buyer values were flat, home movers up and remortgages down. Then in Q3 and Q4, applications were 12% and 24% lower than Q2 respectively.
This year started slightly slower in Q1 but then really began to gather pace in Q2 with an increase in the value of applications of 14% compared to Q2 in 2014. First time buyers and home movers increased when compared to a year earlier but remortgage applications showed the biggest rise of almost 26%.
Then, 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.
Mark Carney, the Governor of the Bank of England, gave a speech in July suggesting “...a process of adjustment will likely come into sharper relief around the turn of this year”. However, the Bank of England's Chief Economist, Andy Haldane gave a speech earlier this month highlighting a number of downside risks to the UK economy and that “…there could be a need to loosen rather than tighten the monetary reins as a next step to support UK growth and return inflation to target," he said.
Looking at these comments, the case for when we can expect a rise has not yet been made with any certainty but I believe most borrowers are still anticipating the next move in BBR to be upwards, which is prompting more borrowers to consider a fixed rate mortgage now.
More choice and cheaper deals
A recent report from Moneyfacts confirmed that there are now 2,402 products available to remortgage customers, a 15% uplift from a year earlier, and that the average two-year remortgage rate is now 2.57%, down 0.88% from the same period in 2014.
Charlotte Nelson, finance expert at Moneyfacts, believes that “… now is the perfect time to remortgage; growing product numbers and falling rates have created a perfect storm in the remortgage market, and borrowers are rushing to take advantage.
She added “…the average two-year fixed mortgage for remortgage customers has fallen by an astonishing 0.39% in just six months, for example, which just shows how quickly the market has improved for borrowers."
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 “mortgage deals can't get much cheaper”, and 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 2017/18 , 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. Citizens Advice has estimated that 934,000 have no plan in place to repay their loans. They will, 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. I believe we will see more and more borrowers looking to converts some or all of their mortgage to repayment in the next weeks, months and years.
Help to Buy (HTB) remortgages
The Government launched its HTB Equity scheme on 1st April 2013 and in the first 27 months (to 30 June 2015), 56,402 properties were bought under the scheme. The majority 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 8,000 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 has never been a better time to help borrowers achieve their aspirations of living in the home that they want with the best possible deal.
1 Copyright CACI Ltd 2015 – source weekly Mortgage Applications Reporting Service (MARS).
2 Mark Carney from Lincoln to Lothbury: Magna Carta and the Bank of England - (www.bankofengland.co.uk/publications/Pages/speeches/2015/832.aspx)
3 Andy Haldane at the Portadown Chamber of Commerce, Northern Ireland: How low can you go? – (www.bankofengland.co.uk/publications/Pages/speeches/2015/840.aspx)
4 Charlotte Nelson at moneyfacts - (moneyfacts.co.uk/news/mortgages/remortgagors-reap-the-benefits/)
Notes to Editors