Homeowners are putting in the effort to remortgage and the increase of 13% completions comes during the normal seasonal remortgage boom according to data from LMS and their Monthly Remortgage Snapshot. In November, there was an average increase of £321.40 added to monthly repayments. Over 50% of homeowners increased their loan size, though this is not a necessary requirement of remortgage. It is likely that there were homeowners who came to the end of their mortgage term obtained when interest rates were lower such as they were in 2022. Some homeowners might have chosen to increase their repayments and use the extra to pay down their debt faster or obtain funds to make improvements or upgrades to their property. 

Despite the expectation of possible cuts to the standard base interest rate in 2025, homeowners are taking advantage of the already lower than expected rates available now and are remortgaging with longer terms than chosen earlier in the year. The two-year fixed rate deal has given way to a new favorite of homeowners, the five-year fixed rate remortgage. Almost half of homeowners, 47%, chose the five-year rate product in November according to LMS.

The reason behind the majority (27%) of homeowners choosing a remortgage was to cash out built up equity in their property with an equity cash release. The funds can be used by the homeowner as they wish whether to consolidate debt, to upgrade their home to be more energy efficient, or perhaps pay for an upcoming expense or holiday. 

While some homeowners are finding higher rates are necessary as they move off their low rate fixed deal from years ago, many homeowners are able to remortgage to lower rates and are doing so and saving money.

The average remortgage loan amount in London amounted to £363,267, and the rest of the UK remortgage average total amounted to £170,643.

Nick Chadbourne, CEO of LMS, remarked, “Although we have seen a month-on-month decline in instructions, activity remains strong as the seasonal remortgage boom continues.

“We are entering 2025 with good pipelines, and we can expect a continuation through next year with 20% more product expiries than 2024. Interestingly, consumer behaviour is appearing to shift. We are seeing a move away from 2-year fixed products towards 5-year fixed products.”

Mr. Chadborne added, “The rationale is twofold. Firstly, fewer customers are experiencing rate shock as many are now moving to lower rates, meaning they can tie in for the longer term. Secondly, this shift is due to customer expectations around interest rates, while forecasters expect further drops, customers are not as certain.”

The uncertainty in the Bank of England’s Monetary Policy Committee (MPC) voting to cut the standard base interest rate is due to recent history. The past twelve months is a prime example of how forecasts and expectations are hard to count on when one’s financial future is at risk. 

The forecasts for early 2024 were for the MPC to cut the rate before the end of the first quarter and a second rate cut likely to occur by the start of summer. Inflation proved hard to tame even with the sixteen-year high base rate of 5.25%. The base rate remained steady month after month until August when the first rate cut voted by the MPC since March 2020 took the Bank’s rate down by 0.25% to 5.0%. The next reduction happened in November when another 0.25% was voted to take the base to 4.75%. Both of these votes for cuts took place months later than first forecasted.

Inflation grew in the last two reports from 1.7% to 2.3% and then to 2.6%, which is certainly above the target rate set by the Bank of 2.0%. This left the MPC to vote to hold the rate steady in their December meeting. The next MPC meeting is not until February. 

Borrowers that passed on the low interest rates available in August when optimism was high will have found the best rates disappeared quickly when inflation increased. As long as it took to get the first rate cut in 2024, homeowners at the end of their mortgage term and passing on a remortgage opportunity to be transitioned to a higher and riskier standard variable rate (SVR) of their lender could end up paying substantially more than necessary. 

Rather than wait out for possibly lower rates in only months, it appears homeowners are taking a lesson from last year and choosing the rates offered currently, which are quite attractive as lenders appear to expect a turnaround by the MPC of the base rate sooner rather than later. However, the lower offers of today could quickly disappear from the lending market if inflation appears to be as stubborn as last year.

Experts are, as usual, encouraging homeowners to shop online for remortgage quotes to make a judgement call on whether waiting is the right strategy or taking advantage of rates now and taking uncertainty and financial stress away from the start of a new year.