Posted on 19 March 2015
As we prepare to welcome in Spring, look forward to lighter evenings, greener fields and the madness of the March Hare, it’s time to have a look at one area of the mortgage market that’s been a little perplexing to those on the inside – a lack of remortgaging activity.
We‘ve seen more sharp reductions in mortgage pricing to the point where 5 Year Fixed Rates are now hovering around the 2.25% mark, while 2 Year rates are around 1.29%.
Despite these record low deals, the Bank of England, Council of Mortgage Lenders, and the British Banker’s Association have all reported a “slump” in remortgage volumes at a time when you would have thought that particular sector of the market should be booming.
Yes, the purchase market is quieter than expected (gross annual lending fell in December 2014 for the second consecutive month) as the expectation of an imminent rise in the bank rate has faded. This may have removed the immediate impulsion for borrowers to snap up deals before they disappear.
But even allowing for that, why is remortgaging reportedly so quiet, when rates are, historically speaking, so low?
One theory is that for those borrowers who want to act alone without an adviser, the daunting prospect of a long drawn-out interview with every lender they might be interested in, is very off-putting, not to mention time consuming. It could be that the temptation might be, as in other walks of life, that if your existing lender offers a new deal, there’s an element of “why not just take it”, even if it might not be as good as some of the other deals out there.
Others may think the introduction of the Mortgage Market Review back in April last year, has left a lot of borrowers stuck and unable to remortgage due to the stricter criteria that accompanied it. Maybe some are hoping that rates will go even lower (unlikely at this point, but can’t be ruled out) and then there’s ‘mortgage prisoners’ - those borrowers who are seemingly trapped on their lenders’ Standard Variable Rate, albeit probably still quite a low rate.
Also, those borrowers who bought a short while back could have seen some favourable capital appreciation of their property. As their deal nears its end, they are perhaps hoping to drop into a lower Loan to Value bracket and benefit from smaller monthly repayments.
So for those who have yet to remortgage, is it now the time to consolidate their gains with a longer term deal? Well the answer to that for a lot of people is ‘yes’!
But here’s the thing! Here at John Charcol, we’ve seen the percentage of residential remortgages being completed against residential mortgages remain steady over the last few years, and in some cases increase. Well we think it’s because as brokers, ours is a long term relationship not just a single transaction, and we have a desire to see that each time we re-arrange your mortgage you’re getting the best advice for your individual situation.
This article is for information only and does not constitute advice. Please obtain professional advice before taking out a mortgage. Your property may be repossessed if you do not keep up repayments on your mortgage, or any debt secured on it.
All information is correct at the time of publication.
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