This article provides a view on the current remortgage outlook in Britain.
It’s the job of UK Finance, the trade association for the UK banking and financial services sector, to keep stock of what’s happening in the mortgage market.
It’s latest report: Two speed market: when will remortgaging run out of gas? makes interesting reading if you’re planning to switch your mortgage product soon.
Why? Because, in a nutshell, it says that the current enthusiasm by homeowners for cheap fixed-rate remortgages, will eventually mean there’ll be a lower supply of them available.
So, in other words, if you’re in a position to pin one down now, grab it!
You can read the whole UK Finance report here, but here are some of its most important conclusions on the remortgaging outlook ahead.
Mortgaging is a Two-speed Market
It says mortgage lending is now “a two-speed market”. This is because house buying is slow but remortgaging is seeing strong year-on-year increases.
People are tending to stay put and weather out the Brexit storm right now, rather than moving home.
Its report also shows that levels of remortgaging also go up when people are worried about interest rate rises.
Given homeowners’ concerns about the impact of Brexit and its effect on the Bank of England rate, we would expect that to be happening now. And that’s exactly the case at the moment.
UK Finance explains: “When a rate rise seems likely in the coming months, they [homeowners] increasingly act to lock into rates (where those rates are attractive) ahead of the curve.”
This April, for example, saw a flurry of remortgaging activity from UK property owners worried about a talked-about May interest rate rise.
The report states: “Although the Bank’s reading of the economy meant the anticipated rate rise in May didn’t actually happen, it’s a case of when, and not if it will, with most still expecting a rise sooner rather than later. It’s likely that the large increase we saw in April’s figures is at least in part a further round of refinancing ahead of the expected rise to come.”
Why could there be Less Cheap Fixed-rate Deals Ahead?
This all boils down to supply and demand.
In recent years, fixed-rate mortgages have been priced very cheaply, with a low Bank of England base rate bringing down the cost of home loans.
In fact if you want to see how mortgage rates have plummeted over the last five years, with two, three and five year rates all dropping by more than 1%, check out the graph below.
You can read the full Moneyfacts article here: https://www.which.co.uk/news/2019/07/remortgaging-boom-how-to-get-the-best-mortgage-rate-when-switching
The dramatic rise in popularity of five-year fixed-rate mortgages has been the big trend of the last 18 months.
Homeowners are looking for security by locking in their rates amid Brexit uncertainty.
The market has responded to the soaring number of would-be customers by giving them what they want.
In the past long-term fixes cost more than short-term fixes. That’s all changed.
The gap in cost between the average two and five-year deal is often less than 0.5%, the lowest level recorded in the last five years.
But here’s the thing. These cheap rates are not going to be around forever.
UK Finance says: “As we look ahead, the likelihood of a rate rise in the near future, together with the larger volumes expiring deal rates, looks set to influence strong refinancing activity through Q2 and into Q3, and a further spike in Q2 2019.”
But what about further ahead? Well the trade association expects things to change.
It says: “We may start to see less pronounced remortgaging numbers, because borrowers are increasingly choosing longer term fixed rates. Nearly half of all the fixed rate lending so far this year has been for five years or more, compared to less than 30% two years ago (when the clear preference was still the two year fix).”
Supply and Demand will determine Fixed-rate Prices
So what happens as this change starts to wash through?
Put simply, so many homeowners will have already locked into fixed long-term deals, there’ll be less demand. So the cost of fixed rate remortgaging deals will rise again.
It says: “There will be fewer expiring fixed rate deals each year. This is likely to contribute to a market with lower overall gross lending through lower remortgaging, and therefore a greater proportion of lending going to house purchase activity.
“And importantly, as we navigate this continuing period of economic uncertainty, a greater proportion of longer-term fixes will also mean fewer and fewer borrowers are exposed to rate rises as and when they occur.”
Of course this is the opinion of UK Finance. But it’s the outlook they see.
Our conclusion? If you want to arrange a long-term fixed-rate remortgaging deal, you’ll be safest doing so sooner rather than later.
Are you interested in learning more about the right time for remortgaging for you?