With the average two-year fixed rate home loan currently at a record low of just 2.26%, there has never been a better time to remortgage. But, while remortgage activity has been growing in some areas such as London, the overall trend is showing fewer remortgages month on month.
It’s not at crisis levels yet but activity has been coming down since its most recent peak in April 2016. Some people will look to the decision last summer as a reason for this but a recent report from Savills found Brexit wasn’t the main reason driving this behaviour. While 27% of those surveyed identified last year’s decision to leave the EU as the main reason for not remortgaging, 44% blamed the current uncertain political landscape created after thesnap election in June.
Stricter rules around mortgages on second homes are also thought to have played a role in the remortgage slowdown, as commentary builds about some areas of the UK clamping down on the purchasing of holiday homes, for fear the trend is taking homes away from local communities.
The only way is up
In years to come are we going to have a nation of regretful homeowners kicking themselves because they didn’t switch deals in 2017? From my vantage point as head of products at First Direct, I certainly think so. There really hasn’t been a better time to remortgage as the only way appears to be up as far as interest rates are concerned. And the benefits of moving sooner rather than later don’t stop there.
For some time now, most – if not all – members of the Bank of England’s Monetary Policy Committee (MPC) have been voting to keep the rates low to deliver price stability, but their stance is changing. MPC members are no longer in agreement that this strategy is working for the UK economy, and the number of votes to start moving rates up is on the increase.
Stricter stress tests
Add to this is the ease of remortgaging. The Bank of England has recently announced plans to ensure stricter stress testing when applying for a mortgage. In its Financial Stability Report, which was published late June, it clarified its existing insurance measures in the mortgage market, designed to prevent excessive growth in the number of highly indebted households.
It said lenders should test affordability at their mortgage reversion rate — typically their standard variable rate — plus 3 percentage points, in order to promote consistency across lenders’ application of tests to see whether new mortgage borrowers can afford repayments.
This move is intended to ensure consumers looking to take out a mortgage can continue to afford the mortgage in a rising interest rate environment. So what does this mean? Well, standard variable rate mortgages (SVRs) can be as high as 5.75% now, therefore under the new rules the lender would test affordability at 8.75%. Based on the average mortgage size, this could mean borrowers may have to prove they can afford around £300 more each month.
So, with the clock ticking and the sun looking likely to set on record-low interest rates, perhaps it’s time for the nation’s homeowners to look at the current deals out there sooner rather than later.
Nick Harrison is the head of products at first direct.