How is the remortgage market performing?

While interest rates have fallen considerably across the mortgage market in recent weeks, the Bank of England’s latest base rate hike has stirred up further uncertainty among consumers.

That uncertainty, property experts believe, has led to some customers applying for new products now in order to protect themselves against future rate changes. So how is the remortgage market is performing amid current conditions?

Time to remortgage

Nick Chadbourne (pictured left), chief executive at LMS, said any increase in remortgage activity now is mainly due to timing.

“There is no incentive for people to leave mortgage products earlier, but we are seeing people applying for new products earlier as a means of protecting themselves against rates changing,” he said.

Given most lenders’ offers are valid for six months plus, Chadbourne added that this is understandable behaviour.

The difference is, he believes, unlike earlier this year when rates were coming down after Trussonomics, borrowers are more confident of what will happen with rates long term, so are following through to completion.

“Nearly one million people are due to come off their existing product between July and the end of the year; these are people from 2018 and 2020/2021 who moved due to the stamp duty incentives,” Chadbourne said.

Add to that anyone on a tracker or standard variable rate (SVR) who has been enjoying a low rate until now, he said, and it is easy to see why there is increased demand for new products.

Hiten Ganatra (pictured right), managing director of Visionary Finance, concurred with Chadbourne that, for many customers, it is a matter of timing with their current deal coming to an end.

He also agreed that customers are applying for new products as a means of protecting themselves against rate changes.

“Customers are securing deals now so that they are aware of their absolute worst-case scenario and have adjusted their finances to know what they will be paying,” Ganatra said.

In the last few weeks, Ganatra has also seen a number of lenders come out with one-year fixed rate products, particularly since inflation figures have come down, which he believes may be attractive to some customers as they can secure a rate now and revisit their options in a year’s time.

“This is possibly creating a little bit more confidence in the market as lenders are effectively moving to adjust their proposition to what the market needs, and it suggests we are on track to hit the target to halve inflation by the end of the year,” he added.

Advice for clients

Many borrowers, Chadbourne said, are choosing product transfers to protect themselves from affordability checks.

“However, this should come with a bit of a warning; although a great opportunity for some, many borrowers are best suited to shop around and look to fully remortgage to get the best rate,” he said.

House price changes, lender competitiveness, and personal circumstances, Chadbourne said, are all likely to have changed since the last time a borrower has remortgaged, so he believes a product transfer may not be the best deal. Overall, Chadbourne said consulting a broker is critical and will be a huge benefit for finding the best deal out there.

As a rule of thumb, Ganatra said Visionary Finance is approaching clients five to six months prior to the end of their term to get them thinking about what could happen when their current deal ends, and to give them time to weigh up their options before they move on to a new deal.

“Generally, we are finding that lots of clients are not necessarily aware of what their rate is going to move up to, so preparing them and talking through their options is important as it gives them time to consider what the new normal is going to look like,” he said.

Primarily, Ganatra said the firm has been doing a lot of two-year fixed rate deals recently, mainly because three-year fixes have been pulled from the market and people do not want to commit to a longer rate amid current conditions.

“So, the advice we have been giving to clients is to take the two-year option, because the rate differential between a two- and a five-year fix is not massive,” he said.

Although five-year fixes are currently slightly cheaper, Ganatra said interest rates could potentially drop to 3.5% to 4% by mid to late-2024, so he believes locking oneself in for five years at current levels is not advisable. Instead, he suggests customers take a two-year fix and then move on to a five-year deal in two years’ time when the market is more stable.

“Again, with rates projected to come down towards the back end of 2024, I think it is really good that some lenders have moved to introduce a one-year product, as we now have the option of giving further flexibility to clients,” Ganatra added.

How is the remortgage market performing amid current market conditions? Let us know in the comment section below.