The latest data released on remortgage trends has revealed that homeowners might be hoping for rate cuts in the near future. Most remortgaging homeowners in May had chosen five-year fixed remortgage deals, but in June it shifted from 50% to 46% as more borrowers picked two-year fixed rate deals. While five-year fixed rate remortgages were still the most popular, 38% had chosen a two-year deal. Perhaps the small drop in homeowners choosing five-year deals is thought to be optimism that inflation is coming under control and in two years when their deal ends the offered deals will be attached to favorable interest rates.

The increase in June by the Bank of England’s Monetary Policy Committee (MPC) of 0.50% to the standard base interest rate has motivated more homeowners to remortgage rather than face the further rate hikes forecasted. It was the thirteenth consecutive MPC meeting that resulted in an increase in the base rate. It now stands at 5.0% and the forecast is for the August meeting next week to result in a possible additional rate hike of 0.50% taking the rate to 5.5%. 

The decline of inflation to 7.95% from the previous 8.68% shows that the MPC’s assertive stance in raising the rate in June by 0.50% versus the previous rate increase of 0.25% has helped. Yet, inflation remains above the target rate of 2.0%. This signals the work of the MPC is far from over and more increases are expected.

According to the LMS Remortgage Snapshot, the number of remortgages rose while the number of cancellations declined. Another sign that homeowners were taking the advice of experts and seeking a remortgage to save money.

While the interest rates offered less than two years ago were at historically low levels and were much cheaper than the rates offered currently, there are savings to be found. When a homeowner has a choice of a remortgage, a fixed rate will lock in the interest rate and protect the homeowner from further rate hikes and save money. 

Another money saver is choosing a remortgage rather than a standard variable rate (SVR). At the end of a homeowner’s mortgage term, they have the option to remortgage, or their lender will move them to their SVR, but the lender’s SVR could be double or more the interest rate available with a remortgage. By choosing a remortgage over a SVR, the homeowner is likely to save money and perhaps a substantial amount of money since a SVR could rise with every MPC decision to raise the base rate. 

The opportunity to have repayment security is why, according to LMS, 69% of homeowners chose a fixed rate. The lack of confidence in the future of the economy is why another 21% chose a fixed rate. 

More than 85% believe interest rates will rise within the next twelve months. 

Almost a quarter (23%) of homeowners remortgaged while releasing built up equity into cash with an equity cash release remortgage. 

Nearly 69% of remortgaging homeowners saw their repayments increase by an average of £292.64, while the 24% with decreased repayments had an average decline of £358.97. In June, 48% of homeowners choosing to remortgage increased the size of their mortgage debt and the average amount borrowed with their remortgage was £19,403. While 38% saw no change, 21% reduced their mortgage debt and the average reduction after remortgaging was £14,690.

Nick Chadbourne, CEO of LMS, remarked, “Since it’s the end of the second quarter, June always sees a spike in remortgage completions. Instructions also rose because borrowers are now confident that rates won’t be falling in the foreseeable future, so they are looking to secure a product now before they potentially increase along with the expected base rate trajectory.  We will see this trend continue into H2 with over half a million borrowers nearing the end of their current mortgage term.”

Mr. Chadbourne added, “The challenge is affordability, even with stress tests a thing of the past, banks will be wrestling with this, especially as the Consumer Duty comes into effect. Rising rates create challenges for banks looking to onboard new customers, products continue to change rapidly, and many continue to opt for product transfers. 

“However, shopping around with the help of a broker is critical in such an environment so borrowers would be well advised to do so to get the best possible deal.”