The latest data for remortgaging in the UK was released by LMS and revealed as expected that monthly repayments have increased for homeowners. There are millions of homeowners in need of a remortgage this year as their mortgage term is ending. Without a remortgage deal, they will be transitioned to their lender’s standard variable rate (SVR) which is normally a higher interest rate. Avoiding a SVR is the best strategy for saving money and stepping away from the risk of an interest rate rising in the years ahead as a SVR is not associated with a set term. Only a remortgage can offer a fixed interest rate locked in for the term the homeowner desires.

According to the data from LMS, for homeowners remortgaging last month in May, the average increase in monthly payments was £342.02, with 45% choosing to increase their loan size. Those that decreased their monthly payments did so at an average of £339.44.

The most popular remortgage product for 48% of borrowers was a 2-year fixed rate deal. The most popular reason for remortgaging was to lower monthly payments, which was the reason chosen by 26% of the borrowers. There was an increase of 9% of completed remortgage deals in May, while the cancellation rate in comparison to the previous month had decreased by 3%.

Due to the higher interest rates on the current market in comparison to when a large number of homeowners obtained their two-year or three-year fixed rate deals, it would not be surprising that homeowners would be hoping to reduce their repayment amounts as much as possible. 

The Bank of England’s Monetary Policy Committee (MPC) has voted in every meeting since September of last year to hold the standard base interest rate at 5.25%. In June of 2023, the rate was at 5.0%, the same rate expected after the MPC votes for a rate cut this year. Possibly in August or September. Going back two years, to June 2022, when two-year fixed rate deals ending this year would have been competed, the base rate was 1.25%, and in the prior year, June 2021, the rate was at a historic low of 0.1%.

The difference in repayment amounts when interest rates are reflective of a Bank rate of 5.25% versus 1.25% or 0.1% is substantial and could cause affordability issues for homeowners coming to the end of their mortgage term. Without a remortgage, homeowners will be moved to the lender’s riskier and more expensive SVR. Shopping for a remortgage could provide savings over a SVR and the ability to choose a fixed rate is only possible with a remortgage.

The average remortgage for May according to LMS London was £375,612, while the average for the rest of the UK stood at £171,223.

Nick Chadbourne, LMS CEO, remarked, “The sun is shining and ERCs are low, indicating a quiet few months in the remortgage world. The remortgage market follows the usual patterns, just like Gareth Southgate’s strategies at a major tournament. There is still a high level of product transfers as lenders aim to increase retention in a low-margin environment, and the summer has a drop in product maturities, which means the remortgage market will be very low until schools reopen.

“The Prime Minister surprised us all with the decision to have an election in July, while the Bank of England kept rates the same at the beginning of June, citing one metric as the reason, but I think we all know it’s because of the election. So, the sun is shining, the football is on, kids are about to finish school, and ERCs are low – all signs indicate a quiet few months in the remortgage world.”

As stated earlier, the base rate this time last year was 5%, the same rate expected when the MPC decides to cut the rate this year as inflation is tamed in to sit near target. Inflation declined to the 2.0% target rate in the twelve months to May as reported on 19 June. The first cut, whether in August or September, will be the first since early 2020 and likely be 0.25%, taking the base rate to 5.0%. 

Fortunately for borrowers, lenders are more optimistic than in the last few months for a sooner rather than later rate cut, and many are already offering attractive deals in anticipation of the MPC vote in August to reduce the base rate. Therefore, shopping around for a remortgage deal now, could likely allow homeowners to discover a deal to lock in versus paying more than necessary on a SVR. 

Lenders are competitive and growing more so to get a jump on grabbing the attention of borrowers, especially homeowners seeking remortgages. By shopping online for remortgage quotes, opportunities to save will likely be found.