It’s coming up to decision time for millions of mortgage borrowers. According to market data, around 2.4 million fixed rates will reach maturation in 2024, with many brokers already opening the lines of communication to establish where their clients stand and what they need going forward.
While the remortgage remains the end goal here, it’s worth pointing out that there is a window of opportunity for some clients to get their finances in better shape before remortgaging.
Consolidating debts
The last few years have put an awful lot of pressure on household budgets. The impact of the pandemic continues to be felt by many, who may have taken on some additional credit in order to make ends meet while being furloughed from work. The pandemic was followed by the cost-of-livingcrisis, and persistently high inflation, which has only put those budgets under greater strain.
As a result, there will be clients who have a remortgage date on the not-too-distant horizon, but who have a handful of outstanding debts which could benefit from more immediate attention.
A secured loan could prove useful for these clients, too. Such a facility allows the client to consolidate those various debts, bringing them together into a single payment. This comes with the obvious organisational benefit of only needing to think about a single repayment date for the loan, rather than the various dates currently in place for their various forms of credit and the budgeting stress this can create.
But there is also the immediate impact of cutting the cost of repaying that debt. Because restructuringthose debts – which tend to be unsecured – onto a secured loan, set against their property, in some circumstances can mean a substantial drop in interest rates and therefore the size of their repayments.
Our conversations with brokers have made it clear that there is a tangible demand for a short-term secured loan option, for borrowers hoping to reorganise their finances ahead of a future remortgage, which led to the launch of a new one-year fixed rate for both first and second-charge lending. It allows clients the breathing space needed to get into the best possible shape before re-mortgaging 12 months down the line.
Making the most of the existing mortgage rate
One of the biggest selling points of secured loans has long been the fact that the client is able to raise funds against their property without touching the original mortgage. As the money is raised against the equity held in the property, the existing mortgage can continue as is.
This has always been a compelling proposition simply because of sidestepping the cost of early repayment charges, but in times of interest rate increases it becomes all the more attractive.
Because the reality is that virtually all borrowers who have a year or so left on their existing fixed rate mortgage are facing the prospect of a painful increase to their repayments. Remortgaging today in order to raise those funds for a consolidation will mean they not only have to pay the exit fee, but also mean they move onto a more costly mortgage ahead of schedule.
That’s never been a particularly attractive idea, but at the moment it could not be less appealing.
Tapping into the equity
It’s also important to recognise the opportunity that the house price growth in recent years presents to these clients. It’s easy to become preoccupied with the recent reports of house price falls, with Halifax for example suggesting that average house prices have declined for six months in a row.
While that may well be the case, the truth is that such falls have come on the heels of years of rapid house price growth. As a result, clients are likely sitting on far more substantial equity stakes than when they purchased, even if there has been a slight slide over the last few months, this equity in the right circumstances might be able to help them.
Getting in shape for the remortgage
Considering a secured loan can provide clients with much needed breathing space.
With the inevitability of a higher rate when they come to remortgage, compared with their existing mortgage deal.
Given the movement’s we are seeing in the mortgage market, the outlook is more positive than it once was that the rate they will face when remortgaging in 12 months’ time or so will be lower than what they would have to sign up for today too.
With so many fixed rates maturing in the near future, it makes sense for brokers to be on the ball in establishing all options for their clients. That means taking into account the potential offered by a secured loan in the meantime, as well as the regular remortgage down the line.
Maeve Ward is commercial director at Central Trust