For some borrowers, remortgaging is a way to move down the loan-to-value (LTV) scale and benefit from lower rates, but research suggests that others are taking advantage of the competitive environment to go in the other direction. In fact, LMS has found that 35% of remortgagors in June opted to increase the size of their mortgage to release cash, up 4% from May, suggesting that many could still benefit from a cash injection.
Not only are more people choosing to increase the size of their loan, but the amount they're withdrawing is on the rise, too. The figures show that borrowers withdrew an average of £34,000 when they remortgaged, which is almost a quarter of the typical remortgage size and the highest amount ever recorded.
So just what are they spending all that money on? Well, of the 35% who chose to increase the size of their loan, more than two-thirds (71%) did so, at least in part, to pay for home improvements. A further 31% said that the money would be used for debt consolidation, while around 3% would use the additional cash to cover the cost of a holiday and the same amount would use it to pay for school fees. Almost a quarter (23%) cited other additional factors, such as investing in buy to let.
It seems to be a tale of two halves, as although borrowers are benefiting from record low mortgage rates and improved affordability, they clearly need the extra money, suggesting that improved economic conditions haven't yet filtered down into individual households.
This could largely explain why so many are choosing to increase the size of their loan. Two-thirds of borrowers admitted that they remortgaged to take advantage of competitive rates, and thanks to that, many could increase the size of their loan without their monthly repayments escalating.
The figures went on to reveal that mortgage repayments now account for less than a fifth (17.6%) of household income – another record low – while 40% managed to reduce their monthly payments by up to £500, so it's perhaps unsurprising that so many people are considering this route.
Whether you want to increase the size of your loan or take the opportunity to move down the LTV scale, now's a great time to consider remortgaging. The prospect of a base rate rise in the not too distant future means that these record low rates won't be around forever, so if you want to stand the best possible chance of benefiting, it's time to consider your options.
Andy Knee, chief executive of LMS, commented on the findings: "As we reach the heights of summer, remortgage lending is gradually creeping up, and record low interest rates have compelled borrowers to go out and seek better deals other than those offered by their existing lenders.
"Whether it is to repay debts or enjoy themselves during the holidays, the fact that families need to free up cash within their property, rather than using their own savings, implies that economic improvements are yet to register for many people. In such a situation, even a minor increase in the interest base rate is bound to put a squeeze on pockets and borrowers need to prepare themselves.
"Now is therefore the perfect time to remortgage, [and] it's important for borrowers to shop around and seek advice on the best new deals currently available in the market before these potentially come to an end later on in the year."
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