Just one in five remortgagors fear interest rate rise despite speculation
- Despite this rate rise indifference, remortgaging activity now at highest level since November 2008
- Average interest rate fell to 2.56% in June, another record following nine months of falling rates
- Two in three homeowners are remortgaging to lower rates
Just one in five remortgagors (22%) polled in July believe interest rates are going up – despite continued speculation of a rise in the Base Rate after Mark Carney recently suggested a rise would occur by early 2016 – according to findings from LMS.
However, the number of people predicting rates will decrease fell by one percentage point from last month to 4% and remortgaging activity was boosted by borrowers keen to take advantage of the competitive offers currently on offer.
The number of remortgaging loans in July rose by 47% from 31,600 in June to 46,423 in July. Remortgage lending also reached £7.2bn, up 89% year-on-year and 41% from June*. The average interest rate fell to 2.56%, continuing a nine-month long trend of falling rates but – despite the probable delay in an interest rate rise caused by Black Monday – this will not continue indefinitely.
Despite the apparent lack of concern about an interest rate rise, almost two in three (62%) people remortgaging in July did so in order to lower their mortgage rates. This, however, is down by 4% compared to June 2015. Taking advantage of the record-low rates meant more than a third (37%) of borrowers managed to reduce their monthly mortgage payments by £500.
Almost one in three (32%) borrowers who remortgaged did so to increase the size of their loan, with one in four (25%) of those extending their loans by more than £10,000.
Of the 32% increasing the size of their loan, almost two thirds (62%) used the additional cash to pay for home improvements, while 27% paid off other debts. Around 3% used the additional cash to help a child buy proerty, while 2% used it to pay school fees for their children and 1% funded a holiday. Almost one in five (19%) additionally cited other factors, for example, buying another property or covering the cost of a divorce.**
Almost half (45%) of those who remortgaged did so simply because they had come to an end of a deal, down by 4% from 49% in June.
Four-fifths took advantage of the current competition in the market and switched lenders. This has remained constant since June, but is up by 5% since May. Just 3% of those who stayed with their lender were incentivised to do so.
Andy Knee, Chief Executive of LMS, comments:
“It is surprising that so few remortgagors were expectant of an interest rate rise, given the volume of speculation since Mark Carney’s announcement last month. The Black Monday crash and volatile markets have now most likely postponed an interest rate rise by a few months, so those looking to capitalise on record-low interest rates can breathe a sigh of relief.
“However, we shouldn’t forget that the Base Rate cannot be kept on hold forever and the Bank of England is pushing towards a tighter monetary policy. There is no reason why homeowners should stall; now is the opportune moment to make the most of competitive rates and we anticipate a continued flurry of activity among homeowners keen to take advantage of this and reduce their monthly outgoings.”
* LMS Remortgage Report, July
** Percentages will not add up to 100 as respondents could select more than one option