Mortgage blog: Remortgages set for big increase as economy improves
Posted 24 September 2014 by Keith Osborne
Since the financial crisis, the number of homeowners remortgaging their property has fallen dramatically. There were 1.2million remortgage transactions in 2007 but this number had fallen to 350,000 in 2010 before recovering to just 399,000 last year.
Now, though, the improving economy could be set to help thousands of homeowners to switch their mortgage. We look at why the number of remortgages has fallen since 2007 and the factors likely to drive a sharp increase over the next few years.
Why are fewer people remortgaging?
According to research published in Financial Reporter there are three main reasons why the number of remortgage transactions has fallen in the last seven years:
- ‘Mortgage prisoners’ have been forced to sit on their current lender’s Standard Variable Rate (SVR) because they don’t have enough equity to remortgage or because lending conditions have tightened and they simply can’t get another mortgage.
- Millions of borrowers are ‘sitting pretty’ on low rates. Many borrowers are on Base Rate tracker deals or on SVRs that are below 3% and therefore have no incentive to remortgage because a new deal would not be as favourable.
- Homeowners have simply not considered switching their home loan. Research estimates that there are 4.4million homeowners who could benefit from remortgaging but simply have not done so.
Why the number of remortgages is set to increase
As the economy recovers there are several reasons why more and more people are set to remortgage their home.
First, as house prices increase homeowners will find that they have more and more equity in their property. This makes it easier to mortgage – and to get a better deal – and will also allow borrowers to withdraw some equity from their home.
Each 1% rise in house prices makes an additional £23bn of housing equity available. This helps borrowers who have been unable to remortgage because they have been in negative equity to get a competitive deal.
Rising interest rates are also likely to encourage borrowers into a remortgage. Rising rates will make many of the current tracker deals less attractive and so many borrowers are likely to remortgage into a fixed-rate deal in order to protect themselves against base rate rises.
Keith Osborne, editor of whathouse.com, says: “Increasing house prices give borrowers more equity and, as their loan-to-value falls, it improves the choice and price of deals available, making it more financially beneficial to remortgage. In addition, any interest rate rise is likely to drive thousands of borrowers into taking out a fixed-rate deal in order to give them the peace of mind of stable repayments.”
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