Historic low rates encouraging more UK home owners to remortgage

Two thirds of remortgagors in the UK plan to remortgage again in the next four years, spurred on by record low rates, new research has found.

Some 46% change their mortgage product to suit circumstances, two year fixed rates are falling in popularity while five year fixes grow as rates fall and borrowers seek stability.

The research from conveyancing panel management specialists LMS also shows that choice of lender is driven by rates available with 11 out of 20 picking a lender for this reason and only one in 20 doing so due to customer service.

Overall, in September some 85% of remortgagors were able to lower their mortgage rate at a time when the interest base rate is at an historic low of 0.25%.

Home owners can reap the rewards of rising house prices and competitive rates by remortgaging, something many appear to be aware of, the research suggests. Indeed, 64% of people who remortgaged in September believe they will do so again within the next four years.

However, 62% of remortgagors in September only remortgaged when they did because they had come to the end of their current deal. The report says this suggests complacency or lack of awareness among some home owners 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 and 69% 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 while 9% believe they will be lowered again within the next year.

‘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 and August had the highest number of remortgages for seven years, after the base rate was cut,’ said Andy Knee, chief executive of LMS.

The LMS survey also examined customer preference relating to product choice and found that 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 while repayment and the popularity of five year fixes have risen.

Of those who changed their mortgage product, some 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.

The survey also found that saving money is by far the most important factor when choosing a lender and 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 for 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 5% said customer service was the most decisive factor.

Knee explained that 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 that home owners are either keen to take advantage of competitive rates and lower costs with short term fixes or 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,’ he concluded.