Two thirds of remortgagors plan to remortgage again in the next four years, spurred on by record low rates
In September, 85% of remortgagors were able to lower their mortgage rate, according to LMS, one of the UK’s leading conveyancing panel management specialists.
The findings illustrate why it is such a good time to remortgage following the vote for Brexit and the lowering of the interest base rate to 0.25%.
Remortgagors plan to remortgage again within four years
Homeowners can reap the rewards of rising house prices and competitive rates by remortgaging, something many appear to be aware of: almost two thirds of people who remortgaged in September believe they will do so again within the next four years (64%). Just 12% plan to wait more than eight years to remortgage again, welcome evidence that savvy homeowners are making the necessary arrangements to save money.
However, 62% of remortgagors in September only remortgaged when they did because they had come to the end of their current deal. This suggests complacency or lack of awareness among some homeowners, who could switch to make monthly savings earlier than they realise – something that may prove invaluable for many households who face higher costs for essentials as a result of rising inflation.
Following the Bank of England’s move to reduce the base interest rate from 0.5% to 0.25%, the majority of remortgagors do not expect any further changes to interest rates in the immediate future. 69% of respondents expect interest rates to remain the same for the next year.
Perhaps surprisingly – given fairly widespread commentary to the contrary – 14% believe interest rates will increase in the next year. Less than one in ten (9%) believe they will be lowered again within the next year.
Andy Knee, Chief Executive of LMS, commented on the findings:
“Record-low mortgage rates after the cut to the base interest rate make this a great time to remortgage. Mortgage interest rates were already falling but this cut may have been the catalyst to encourage more people to remortgage – August had the highest number of remortgages for seven years, after the base rate was cut.”
Popularity of five-year fixed mortgages on the rise as rates fall
The LMS survey also examined customer preference relating to product choice.
In September, 46% of remortgagors changed the type of their mortgage product to suit their current financial situation and expectations. In the process two-year fixed products declined in popularity among remortgagors in September, while repayment and the popularity of five-year fixes have risen.
Of those who changed their mortgage product, almost two in five (38%) had a two year fixed mortgage for their previous term, a figure that decreased to 26% who opted for this type of product in their new mortgage. In contrast, just 8% of remortgagors had a five-year fixed mortgage before remortgaging, but this number has since climbed to 22% as average rates for this type of product have fallen and they became more attractive to customers.
However, five year fixes remain more expensive than two year fixes, supporting anecdotal evidence that, in the current environment of political and economic uncertainty, people are looking for longer-term security even if this involves slightly higher costs in the short-term.
Just 13% of remortgagors who changed their mortgage had a repayment product, a figure that has risen to 19% for those who have one since remortgaging. Variable mortgages, on the other hand, fell from 18% who had this in their previous term to 17% who have that product now.
Andy Knee, Chief Executive of LMS, added:
“Today’s favourable conditions and very little anticipation of rates rising any time soon, means homeowners plan to take advantage of this and remortgage more frequently. For those who have not remortgaged yet, there is still plenty of incentive to act before the year is out, and may provide some welcome relief in the run up to Christmas when rising prices and higher inflation are likely to take its toll on family finances.”
More than half prioritise best rates
Saving money is by far the most important factor when choosing a lender. 55% of remortgagors said the main reason they chose their lender was because it offered the cheapest mortgage deals or best interest rates. This is more than twice as many as the second most popular option: 22% who opted for a lender based on a recommendation from their broker or adviser.
Only 8% said a lender’s reputation was the most important factor when choosing a product, while just one in twenty (5%) said customer service was the most decisive factor.
Andy Knee, Chief Executive of LMS, concluded:
“While two-year fixed products remain the most attractive to remortgagors, the growth in popularity of five-year term fixed mortgages is interesting and suggests two distinct personalities among homeowners at present; those keen to take advantage of competitive rates and lower costs with short-term fixes and; those who are more cautious, prioritising greater stability in a period of uncertainty by fixing for longer. As the terms of Brexit remain unclear and its impact on prices and costs are not fully realised, it will be interesting to see whether more people start erring on the side of caution or wait for more information.”