Are the headlines right and are the cheaper mortgage deals really disappearing from the marketplace? Is it the time to act or should you be sitting pretty… Islay Robinson, CEO of Enness Private Clients, explains why now is a good time to examine your finances with an adviser, whatever the circumstances.
44,488 mortgages were approved for house purchase in June. That’s a whopping £7.7 billion in total value, according to the British Bankers’ Association (BBA). Simultaneously, their figures support our view that there has been an enormous increase in the amount of people remortgaging – the number of remortgage approvals has leapt by 20% compared to a year ago. We partly attribute this trend to the newspapers heralding the end of cheap fixed rate mortgage deals after Carney’s projection for interest rates to soon rise, although we will explore the other factors.
Do I need to remortgage?
After the trauma of the financial crisis the most popular answer to “should I remortgage” seems to be to snap up a cheap fixed rate mortgage in order to ensure security and stability over the coming years – regardless of whether interest rates rise or not. The growth of this trend indicates people prefer to have guaranteed stability over the “riskier” preferences they used to favour beforehand.
In recent months, since the banks have got their heads around the changes enforced in the MMR (Mortgage Market Review – when the regulator tightened the regulatory rules surrounding mortgage borrowing) a mortgage price war has broken out between lenders. In their attempt to drive new business these lenders have slashed rates lower than they have ever been. Indeed, an expert at Moneyfacts.co.uk has produced analysis which demonstrates the average two-year fixed rate mortgage has fallen from 3.67% to 2.75%.
But how long can interest rates stay this low?
These rock-bottom rates will not be available forever but how long do you sit it out before making a move? They are inevitably going to start increasing as speculation mounts around the looming interest rate increase. This move is unlikely to immediately affect the smaller, more bespoke and specialist lenders as yet, but the big banks, such as Barclays and Santander, are already increasing their rates. Many experts predict this may result in a “domino effect” of banks acting similarly, although others may hold on in order to generate new clientele by being competitive.
On the other hand regarding the question “should I remortgage”, it is important to remember the lesser-known fact that most tracker rates already include or account for an interest rate rise so you are not in an enormous hurry to move to a switched product before the first increase if your mortgage is not due to expire for a few years. It’s probably best practice to check when your fixed rate mortgage is due to end. If you the end of your rate is near or you’re sitting on SVR (standard variable rate) you should probably act with greater gusto to secure a good rate.
Hugh Wade-Jones, Managing Director of Enness Private Clients, comments on the matter of “should I remortgage”, stating: “Historically, the first rate rise is going to be the first trigger point for many people who intend to remortgage. Realistically, you do have more time than you think before making any big commitments or changes. The bulk of households aren’t going to be markedly affected until the second or even the third interest rate rise but do plan ahead as the best fixed rates may have disappeared from the market by then”.
What are the next steps to take?
As everyone’s circumstances, backgrounds and financial aspirations differ there is no generic “right” or “wrong”. We always advise the savviest borrowers to get in touch with a broker in order to have a full consultation and then map out the best approach for them from there. The mortgage industry in general is expecting remortgage inquiries to intensify whilst people try to put their ducks in a row.
There can be no concrete decisions until the interest rate rise date is officially announced. HIS Global Insight’s Howard Archer has, however, stated: “There is now a very real prospect that the Bank could act before the end of 2015”.
It is always going to be a bit of a judgement call whether to fix or not as swap rates (which are used to price loans) have been increasing. They are the main factor which affects the price of fixed rate mortgages. Your broker will be on top of the market when it comes to this as each individual case will differ.