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Remortgaging activity is leading the way at the moment, with many homeowners taking advantage of record low mortgage rates to secure lower repayments, or even to release equity from their home. However, research from LMS identifies another trend, with many remortgagors seeking long-term security in the process.
The figures show that a total of 38,475 remortgage transactions took place in April, up 8% from March (35,500), and a rise of 10% year-on-year (up from 34,700 in April 2016). The value of remortgage lending also increased on a monthly basis, rising by 2% to £6.1 billion.
This comes as total mortgage lending fell by 11% to £18.4 billion, according to additional figures from the CML, which means remortgaging accounted for 33% of total lending, up from 28% in March. This essentially means that remortgaging activity is propping up a slowing market, with Election-related uncertainty beginning to have an impact – but it isn't putting remortgagors off!
Many are taking the opportunity to unlock equity and pay off debts, with 15% remortgaging for this reason in April, up from 11% in March. This unfortunately suggests that many homeowners are feeling financial strain, but with mortgage rates at such low levels, remortgaging could be an ideal way for many to reduce their burdens.
Nonetheless, releasing money to spend on home improvements remains the most popular driver of remortgaging, with 24% choosing to do so in April. Homeowners released an average of £29,148 by remortgaging, so whatever their reasons, they certainly had a lot of cash to play with!
A particularly notable finding was the fact that a growing number of homeowners are seeking long-term security, with 34% of those who remortgaged in April opting for a five-year fixed rate mortgage deal, compared with 8% who previously had this product type.
This kind of mortgage has even overtaken two-year deals in the popularity stakes – just 24% chose a two-year mortgage in April, down from 36% who had such a deal previously, showing a definite shift to long-term deals.
This "continues the trend of homeowners fixing onto longer term deals in search of security, which has been prevalent in the last three months," said the report, and comes alongside a highly uncertain climate. Not only has the snap General Election and Brexit uncertainty left many people craving a bit of stability, but real wages continue to fall (down by 0.2% in the first three months of the year, said LMS), leaving many seeking to bolster their finances for the future.
Remortgaging can be a great way to do that, particularly if you opt for a long-term fixed rate deal – you can be safe in the knowledge that your repayments won't change for the foreseeable future, and as rates are so low, those repayments could be far lower than with your previous mortgage deal, saving you money in the process.
Let's say you're coming to the end of a two-year fixed rate mortgage deal. In May 2015 the average rate was 2.95%, yet our figures show that it's now 2.30%, which means you'd see a rate reduction of 0.65% if you remortgaged to a new deal. Alternatively, if you chose to revert to your lender's standard variable rate (SVR), which currently stands at an average of 4.59%, you'd see a rate rise of 1.64%.
Remortgaging is the only sensible choice – just think of the savings you could make! Even a five-year deal could save you money, with the current average at 2.89% still lower than the average two-year rate of two years ago. These are just averages, too: check out our mortgage Best Buys and you'll find even lower rates, which could offer the ideal combination of long-term security and record low repayments.
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