Re-mortgage Market Driven by Increased Competition


New reports from LMS, revealed that in May, over half of those who decided to re-mortgage did so to take advantage of the good rates available to reduce their mortgage rate.
The survey showed that 32 percent were able to lower their monthly costs by about £500, while the percentage of people who were re-mortgaging to increase the amount of their credit grew by 2 percent from 24 percent to 26 percent. The number increasing their credit by more than £10,000 also rose by 3 percent in May from 16 percent in April to 19 percent.
The number of re-mortgagors who think interest rates will climb has grown marginally from 12 percent to 14 percent in April and May respectively. This was probably driven by uncertainty following the EU referendum which eventually led to a Brexit result. There are speculations that the result could drive mortgage rates higher.
A fifth of borrowers (19 percent) used the cash obtained from re-mortgaging to improve their home. Three percent used theirs to assist their children up the housing ladder while seven percent decided to offset their debts.
The Chief Executive of LMS, Andy Knee, says that increased competition between lenders, very low rates and increasing housing equity have combined to give property owners a situation that is suitable for re-mortgaging. The re-mortgaging number hit a seven year high in April, with more than half of them reducing their mortgage rate, and a quarter of them having their credit increased in May. It is obvious that a lot of smart borrowers are taking advantage of the existing situation, and the activity is expected to continue.

The EU Referendum

At the period, the uncertainty surrounding the outcome of the EU referendum saw property owners seeking a stability in their monthly expenses, and selecting long-term security over personal savings. There is also an evidence in the market that several re-mortgagors are choosing a fixed-rate to ensure a regular rate for a fixed period of time.
According to Andy Knee, securing credit now is very competitive with a sizable amount of savings to be made in the long term, even if people have to pay a little extra in the short-term. Following the current economic climate of uncertainty, knowing the value of your mortgage payment for the next five years is a tempting offer for many re-mortgagors.

Why People Re-mortgage?

One out of three homes loans in the UK are re-mortgages. While this appears to be an attractive period for re-mortgagors, it does not automatically present an opportunity for everybody to do so.
Remortgaging can save people large sums of money, and for most, it is their largest financial commitment. Unfortunately, as re-mortgaging has its advantages, it also has its disadvantages.

When to Re-mortgage

● Existing deal is about to mature: A lot of the best mortgages last for a limited period- about two to four years –the usual period of time given for a fixed rate or discount mortgage. When it matures, the lender puts it on a standard variable rate (SVR). This new rate is likely to be more expensive than the previous rate and higher than best buys obtainable, so people looking for a cheaper mortgage rate start shopping around for better offers several weeks before their rate ends.

● Available better rates: New rates available can be tempting when they are significantly lower, especially for people with a high amount of mortgage debt. However, for those with a previous deal, some repayment cost can be expensive, usually 3- 5 percent of an outstanding loan. Some lenders place an exit fee (sometimes called an admin fee or deeds release fee) when people repay any mortgage. It is advisable to do all necessary calculations before switching.

● To Borrow More: When people wish to borrow more and are not availed more credit by their current lender, or perhaps the available offerings aren’t attractive, they begin to look elsewhere. Remortgaging to a different lender can provide opportunities for people to raise cash inexpensively on competitive rates.

When Not to Re-mortgage

● When mortgage debts are small: If your loan is below a particular amount- perhaps £60,000 –it is usually not worth changing lenders, just because you are likely to save some money if the fees are high. Actually, some lenders will refrain from availing a new loan on mortgages lower than £25,000. The smaller the mortgage, the worse the outcome on any fees borrowers will have to pay.

● When your home value has dropped: A person may have had a 10 percent deposit when they bought a house and got a good mortgage, borrowing the outstanding 90 percent of their house’s value. If the same house price has fallen, the amount owed can be bigger. They are a victim of evaporating equity, and it is better to remain with the current lender and continue making overpayments until prices in that area go up again.

● If you are already enjoying a good rate: Sometimes, it is better not to jump ship if you are already getting a good deal. Instead of changing lenders and having to pay unnecessary exit fees for a similar treatment, borrowers can remain with their current lender. However, you are advised to remain attentive to market rates just in case there is a sudden change.

The Future

In April, Chancellor George Osborne stated that interest rates, and therefore cost of home loans (mortgages), were likely to go up if Britain voted to leave the European Union. It is not exactly clear if his fears are justified yet, as the market is currently adjusting to the result.
Notwithstanding, people are still wary of the uncertain future ahead, and will continue to take advantage of mortgage rates as long as they remain favourable.
The number of people renting homes in the long-term, on the other hand, has risen to record numbers. This is probably because, to a majority of renters, it is a much cheaper alternative; even with competitive mortgage rates available.

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