Results from an investigation by the Mortgage Advice Bureau have shown that homeowners are looking to cash in on spiralling property values. This in turn is pushing the average remortgage loan to a new level.
During July, the average remortgage loan was £170,094, which represented a 2% increase from June’s figure of £166,100. In addition, this was the highest total recorded since the Mortgage Advice Bureau began tracking the figures in 2009.
What’s more, the value of a property made available for remortgage reached £300,898, which was the highest figure noted in nine months since October.
Data from the report shows that rather than taking out smaller loans and lowering monthly mortgage repayments, lenders are looking to cash in on property gains. The typical remortgage loan-to-value rose by 1.1% to 56.5% in July. In comparison to the average LTV six months ago, there has been an increase of 1.6%.
More borrowers taking out higher loans have seen their average housing equity fall by 2% during the last six months. There has been a drop from £133,718 in January to £130,804 in July. In addition, there was a significant yearly fall from July 2014, when the average remortgage equity was 9% higher at £141,984.
‘Homeowners have benefited from significant house price rises in recent years,’ said Brian Murphy, head of lending at Mortgage Advice Bureau. ‘For example, someone who bought their house five years ago may have seen the value of their home soar by almost a third, according to the Office for National Statistics. As a result, many homeowners are in an ideal position to use their property to release extra funds.’
‘However, opting for a higher LTV means borrowers may have higher monthly mortgage repayments to contend with – and could end up paying more over the full duration of the loan. Borrowers coming to the end of their current mortgage deal will need to decide whether to prioritise reducing their overall mortgage debt or releasing cash for the here-and-now,’ he continued.
Further data from in excess of 700 brokers and 900 estate agents shows the number of remortgage applications in July was up by 35% year-on-year, with borrowers being encouraged to act now with the imminent threat of an interest rate rise.
New high level for remortgage loans
Additionally, remortgagers are looking for fixed rate deals. The proportion of remortgage lenders looking to find a fixed rate deal in June was 87.1, rising to 89.7% in July. A similar trend is present in the purchase market, with the proportion of people looking to fix their mortgage rates standing at 93.8%.
Lenders are also locking into fixed rate deals to ensure they get the best of the competitive deals available in the current market. Data from Moneyfacts.co.uk’s Index indicates the average two-year fixed rate in July was 2.76%, lower than June’s average of 2.87%. Three-year fixed rate deals remained static from June, totalling 3.13%, with five-year rates falling to 3.29%.
Murphy observes that, ‘Mortgage rates have been tumbling since the beginning of the year, and many borrowers have jumped at the chance to secure a low rate deal. However, a few high street lenders increased their pricing recently – suggesting we may fast be approaching the bottom of the curve.’
‘Delaying too long could mean borrowers miss out on the change to shave significant amounts off their monthly repayments, so anyone looking for a mortgage in the near future would do well to get the ball rolling. Although not suitable for everyone, fixed rate deals can protect against rising interest rates and extend the life of today’s record low rates,’ Murphy concluded.