Homeowners are taking advantage of the same lower cost borrowing that is fueling demand in the UK housing market. The opportunity to remortgage is not being pushed aside in favor of being transitioned to their lender’s standard variable rate (SVR) to await lower rates in which to choose a new deal. The expectation of lower rates is due to the forecasts of another cut to the standard base interest rate by the Bank of England’s Monetary Policy Committee (MPS). While there is normally a seasonal boost in remortgage lending during the autumn, it is likely the ability to obtain an lower than expected remortgage interest rate is part of the motivation to seek a new deal.

The first cut to the base rate since early 2020 occurred in August of this year. The sixteen-year high rate was dropped by 0.25% from 5.25% to 5.0% by a majority vote of the MPC. Another possible rate cut was expected by the end of the year. This has been more firmly established to happen sooner than later due to inflation experiencing a deep decline to 1.7% from 2.2%. 

With no MPC meeting scheduled for October the next possible rate cut could occur in November or December.

It would not be unusual for borrowers to expect lower interest rates when the MPC votes to cut the base rate, for lenders normally bring out cheaper rates not long after the cut. However, a competitive lending market has developed and rates from lenders can already be found on the market that are not only below the current base rate but what would be expected in a second cut to the rate of another 0.25% taking it to 4.75%. In fact, there are mortgage and remortgage lenders offering rates at 4.0% and below.

Homeowners have another opportunity in borrowing currently beyond lower interest rates. The increase in demand in the housing market has boosted house prices and that can translate into higher property values for homeowners. The added equity that naturally occurs when a property value increases could be turned into cash for the homeowner by their choosing an equity cash release remortgage. 

According to the latest LMS Remortgage Snapshot, 31% of homeowners remortgaging noted they were doing so to release equity in their property. Of those that remortgaged in September, 49% chose to increase their loan size and 44% chose a two-year fixed rate remortgage deal, making this the most popular choice for homeowners last month.

Only months ago, homeowners were finding peace of mind in remortgaging with the choice of a five-year fixed rate deal. The two-year choice being more popular could signal less fear of rising interest rates in the near future and leaving open the possibility of remortgaging at the same or a lower rate when their term expires.

The average monthly repayment for remortgaging homeowners increased by £370.13. The increase could be due to the number of homeowners choosing to increase their loan size, but also due to the many homeowners coming to the end of their extremely low fixed rate deals secured two years ago. In September of 2022, the base rate was only 1.75 until the MPC meeting that month increased it to 2.25% which is still less than half of the current base rate of 5.0%.

Luckily, as mentioned, there are attractive deals to be found that are below the current base rate. So, while the chosen rate may be higher than what was available in 2022, it is a savings over what would have been available only a few months ago or last year.

The LMS report notes that 19% of homeowners reduced their total loan, and 32% remortgaged with no change to their loan size.

Nick Chadbourne, LMS chief executive, commented on the September report, saying, “As the summer ended, we were waiting to see if the usual seasonal remortgage uplift would kick in, and it has. Over 33% of all product expiries in 2024 will happen in Q4; therefore, it’s no surprise to see the increase in instructions. Specifically, the end of December consists of the highest number of product expiries for a single month across the whole of 2024.

“Even though rates are forecasted to drop in 2025, we are still seeing a large number of customers choosing to fix over the longer term. Two-year fixed rates are the most popular at 44%, closely followed by five-year rates at 42%, emphasising customers’ desire to lock in certainty over the long term.”