There are many changes occurring in the UK mortgage market as the reasons around why people decide to remortgage change. It has been found that homeowners are now opting to avoid deals with a short term and variable rates onto deals with longer terms such as five years and low rates. This offers them a level of financial security over a number of years.
In an attempt to reduce monthly payments, during the month of July only 15% of those who own a home chose to remortgage which a 6% drop from June. However, in contrast to this, 15% of homeowners remortgaged in order to increase their loan in July – a figure that had dropped from 19% which was experienced in June.
Therefore, it has been found that instead of remortgaging to lower their payments or borrow more, homeowners are more concerned about interest rates and how they could rise which is why they opted for long-term deals. A large number of homeowners actually believe that interest rates could rise which supports the findings.
More than a third of people choose to take out a five year deal during July which is the highest number since figures were first recorded. This is huge rise in the number of people who previously had a product that was fixed for five years which stood at 7%. During July, the average rate was 2.07% which is a significant reduction on the figure seen in July of 2016.
This signifies a change in the way in which consumers are behaving when the time comes to remortgage. During the last 12 months, people were choosing to remortgage to borrow a new amount or even borrow more money but now things are changing. This is down to the fact that they want to fix into low rates and longer terms so that they have an improved financial security.
Borrowers are protecting themselves from any potential future increases as well as possible difficult times. The way in which people borrow money is changing and now less people are opting for interest only and variable rate deals. They are now more interested in fixing for longer periods. The market has been put under pressure from the serve in investors taking out buy-to-let mortgages and this has now had a knock on effect on residential mortgages.
There was an increase of 12% in the number of people who remortgaged their property in July which meant that 38,300 had remortgaged. The total amounts of these remortgage transactions also increased by 3% between the months of June and July to a cost of £6 billion.
This rise in activity has been put down to the fact that people have better affordability than the month of June with the average annual repayment dropping to £8,080 from £8,197. There has also been a drop in the percentage of total income that was made up by the average annual repayment from 17.5% to 17.1% seen in May and June.
July was a successful month for those who remortgaged as affordability rose to the highest figures for a year. This help to bolster activity while interest rates are still low, leading to lenders fighting to offer the best deals. This has made it a great time to remortgage.