The remortgage market has experienced a definite revival of late. Lending activity in this sector is at a four-year high, according to the British Bankers' Association, with approvals up 38% in the last year. It seems that people are finally taking advantage of the market and remortgaging to a low-cost deal, and many are doing so in the hope of avoiding an interest rate rise.
According to research from LMS, almost three in 10 (28%) of remortgagors in August believed that interest rates will go up, with this level of anticipation having increased significantly in recent months – in February, just 16% of remortgagors expected a rate rise, while in July 22% said the same. In contrast, just 2% of remortgagors now believe that interest rates will fall, a figure that's been steadily dropping over the same period.
It's this expectation that's arguably driving the rise in remortgage activity, as borrowers are becoming increasingly motivated to remortgage to a low-cost deal before rates edge up further. The fear of missing out on lower repayments is understandably a great incentive, and it seems that the message is starting to get through, as lending was up 20% year-on-year in August to stand at £4.2bn.
Indeed, almost two in three of those who remortgaged during August did so to take advantage of lower rates, and it seriously paid off – 37% were able to reduce their monthly payments by up to £500, while 4% were able to reduce their payments by even more. Remortgagors also withdrew record amounts of cash from their homes, with almost a third (30%) seeking to increase the size of their loan – and more than a fifth did so by more than £20,000.
It seems that many are taking advantage of the opportunity to free up some cash while still having low repayments, and they seem to have highly practical reasons for doing so: of those increasing the size of their loan, 28% used the money for home improvements and 60% opted to pay off debts, while a small percentage used the additional cash to help a child buy a property.
"Competitive offers and the threat of a base rate rise continues to drive remortgaging activity as winter approaches, even though an increase before the end of the year now appears unlikely," said Andy Knee, chief executive of LMS. "That said, it is better for borrowers to take the necessary measures in good time rather than be caught off-guard.
"This is all the more reason for potential remortgagors to take charge of their finances before any increase burns a hole in their pockets, and explore the myriad of competitive deals available in the market before they're withdrawn by lenders."
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