LMS research shows that interest rates fell to 2.49% in May while annual remortgage repayments now account for less than a fifth (17.6%) of household income; both record lows. But with the prospect of an interest rate rise looming, borrowers are urged to consider remortgaging now to take advantage of the best rates currently on offer.
The average amount of £34,500 is almost a quarter (23%) of the value of the average remortgage loan size (£150,726) suggesting that many families are still feeling the pinch.
More than two thirds (66%) of those who remortgaged did so to take advantage of lower interest rates, up by 4% since last month. Two in five (40%) managed to reduce their monthly payments by up to £500; up by 6% over the previous month.
Almost half (49%) of those who remortgaged did so simply because they had come to an end of a deal, up by 9% from 40% in May. Four in five (80%) took advantage of the current competition in the market and switched lenders, also up by 5% since May. Just 3% of those who stayed with their lender were incentivised to do so.
More than a third of borrowers (35%) who remortgaged in June opted to increase the size of their mortgage to release cash. This is up by 4% compared to May 2015, prompting LMS to suggest that improved economic conditions are failing to filter down to many households.
Of the 35% increasing the size of their loan, more than two thirds (71%) are doing so at least in part to pay for home improvements while 31% say it is for debt consolidation. Around 3% use the additional cash to cover the cost of a holiday and 3% use it to pay school fees. Almost a quarter (23%) additionally cited other factors, for example, investing in buy to let.
Andy Knee, Chief Executive of LMS, commented:
“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 economic improvements are still to register for many people. In such a situation, even a minor increase in the interest base rate – as indicated to occur before 2016 by Bank of England governor Mark Carney earlier in the month – is bound to put a squeeze on pockets and borrowers need to prepare themselves.
“An improved economy and wage growth in recent months, are all signals for a tighter monetary policy in the near future. Now is therefore the perfect time to remortgage. 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.”
