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Remortgagors aren’t expecting a rate rise

Remortgagors aren’t expecting a rate rise

Category: Mortgages

Updated: 15/03/2016
First Published: 01/03/2016

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The threat of a rate rise seems to have been pushed back until at least next year – some economists even think it won't happen until 2019 – and it looks as though homeowners are in agreement, with few expecting base rate to head upwards in the foreseeable future.

Rate rise sceptics

The research, from LMS, shows that remortgagors are now far more sceptical of a rate rise than they were a year ago, with the figures for January showing that just 22% believe that interest rates will rise in the near future. This is down from 25% who said the same in December, and well below the 30% recorded in January 2015, which highlights how much of an impact market conditions have had on consumer sentiment.

Much of their newfound conviction regarding a base rate rise (or lack thereof) has been driven by global economic uncertainty, the report noted, and the possibility of Brexit this year, both of which have delayed the likelihood of a rise to base rate. This view has arguably been further clarified by reactions from the Bank of England's rate-setting committee and Governor Mark Carney himself, with everything pointing to base rate staying where it is for some time.

However, this hasn't had a negative impact on activity in the sector, and instead, homeowners appear to be capitalising on the strength of the market. Additional figures from LMS show that monthly gross remortgage lending rose to a seven-year high of £6.2bn in January, up 49% month-on-month and 45% higher than January 2015, while official figures from the Bank of England reveal a similarly positive trajectory.

In fact, the number of remortgage approvals totalled 42,228 in January, up from 41,722 in December and well above the average of 40,306 recorded over the previous six months, which suggests that remortgaging activity truly is going from strength to strength.

Taking advantage

When considering the health of the market, it's little wonder. Much of the rise in activity has been driven by borrowers' desire to capitalise on the current landscape, with 65% of those who remortgaged in January doing so to take advantage of low mortgage rates: 36% were able to reduce their monthly payments by up to £500 in the process, and a particularly profitable 3% saved more than £500 a month.

Others opted to increase the size of their loan, and again, given how competitive remortgage rates are, this could be an ideal way to secure a valuable cash injection without paying for it too heavily in years to come. Almost a third (29%) of remortgagors went down this route and increased the size of their mortgage, and 72% of those increased it by more than £10,000.

Many were able to clear other debts in the process – 7% of those who remortgaged in January did so to pay off debt – while 20% used the money for home improvements, and 1% remortgaged to release cash that could help their children buy a property of their own.

Andy Knee, chief executive of LMS, commented on the findings: "With the looming possibility of Brexit, and in the midst of global uncertainty and shaky markets, we're seeing indications from the Bank of England of a base rate rise being pushed back further.

"However, borrowers appear to be wiser, and are still remortgaging to reduce costs rather than becoming complacent. With the cost of a fixed rate mortgage at historic lows, plummeting SWAP rates and so many great deals on the market, it's never been a better time to lock into low interest rates."

What next?

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