Mortgage Advice Bureau (MAB) has found that the average remortgage loan has reached a new high.
Data from its National Mortgage Index suggest that borrowers are increasingly seeking to take advantage of rising property values by releasing cash from their home.
The typical remortgage loan in July was £170,094, a 2% increase from June (£166,100) and the highest figure recorded since MAB began tracking this data in 2009. At the same time, the value of a property put up for remortgage reached £300,898: the highest value seen in nine months.
MAB said the data indicate rather than take out smaller loans – and decrease monthly mortgage repayments – borrowers are opting to cash in on property gains. The average remortgage loan-to-value (LTV) rose 1.1 percentage points from 55.4% in June to 56.5% in July. Compared to the average LTV six months ago (54.9%), this is a 1.6 percentage point increase.
As a result of taking out higher loans, borrowers’ average housing equity has fallen 2% over the past six months, from £133,718 in January to £130,804 in July. This is also a significant annual fall from July 2014, when the typical remortgage equity was £11,180 or 9% higher (£141,984).
Brian Murphy, head of lending at Mortgage Advice Bureau, said: “Homeowners have benefited from significant house price rises in recent years. 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 (ONS). 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.”
Data from over 700 brokers and 900 estate agents show the number of remortgage applications in July was up 35% year-on-year, as borrowers are prompted into action by the prospect of an interest rate rise. In contrast, purchase applications rose by 26%. MAB said this suggests remortgage lending is set to strengthen in the coming months; CML data shows remortgage lending was already up 34% annually in June.
Remortgagers are also increasingly opting for fixed rate deals. The proportion of remortgage borrowers looking to fix in June was 87.1%: this has since risen to 89.7%, the highest since June 2014. A similar trend can also be seen in the purchase market, with the proportion opting to fix rising from 93.2% in June to 93.8%, suggesting security of repayments is becoming increasingly attractive to all types of borrowers.
Borrowers are also locking into fixed rate deals to make the most of the competitive prices currently available on the market. Using data from Moneyfacts.co.uk, the Index shows the average two year fixed rate in July was 2.76%: 11 basis points (bps) lower than June’s average (2.87%). Three year fixed rates remained static from June at 3.13%, while five year fixed rates fell 9bps over the last month to 3.29%.
Murphy added: “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.”