The historically low Bank of England base rate of 0.5% has meant that, over the last three years, many borrowers were actually better off sticking with their lender's standard variable rate or long-term tracker. These rates had dropped to such low levels that it often made sense to do nothing. No switching costs, no hassle and no forms to fill in.
However, the mortgage market has changed in the last year and now existing borrowers should look again at their options.
Lenders have pulled out all the stops with their mortgage pricing since the rate war began last autumn and continual price cuts have left us with the cheapest mortgage rates ever seen.
Fancy a two-year fixed rate at under 1.75%? It's possible. Want to lock into a five-year fix at under 3%? No problem, you have a range of options in today's market.
As a result many existing borrowers will find that they can significantly better their deal by switching to a new mortgage, saving themselves a substantial sum each month and bagging payment security into the bargain.
For example, the average lender's standard variable rate (SVR) is now 4.88% according to Moneyfacts, but it's now possible to switch to a best buy five-year fixed rate of just 2.49%, providing you have plenty of equity in your home.
This means that a borrower with a 25-year £200,000 mortgage would see their monthly repayments drop from £1,155 to £896, a monthly saving of £249, or £3,108 a year. Plus they would be protected from any rises in interest rates for the next five years. Sounds appealing doesn't it?
Of course, there will be an arrangement fee to pay, and they are currently pretty hefty. But the savings will very often outweigh the remortgage costs. Plus many lenders will throw in a free valuation and free legal fees.
Against this background it is no surprise that remortgage lending rose 17% between March and April to £3.4 billion, according to legal property firm LMS. It now accounts for a significant 28% of all mortgage lending – the highest proportion in the last six months.
The latest figures also show that those remortgaging are each taking out an average of £18,906 in extra equity (above the value of the existing loan), meaning a total average remortgage loan of £140,260, 7.9% higher than a year ago.
But while remortgaging is certainly back in fashion, it's important to put these figures in perspective. According to a recent report by the Council of Mortgage Lenders remortgaging peaked during the boom years at more than 50% of all lending, while it is only running at about half that level now. Last year, remortgaging accounted for around 316,000 loans, worth £41 billion - the lowest number of borrowers remortgaging since 1997.
So the upturn comes from a very low base. But it's an upturn nonetheless.
One of the major factors boosting remortgaging has been the Government's Funding for Lending scheme, which offers lenders cheap funds from the Bank of England. For every pound of cheap money that a lender borrows it must show that it has lent that same amount out, so the scheme directly boosts lending. This has worked well since launch with more deals on offer at lower rates across the board compared to six months ago. And it's these lower rates that are really attracting remortgagors.
Fixed rates are particularly cheap, especially five-year deals which are at all-time lows, giving borrowers the chance to remortgage to a competitive rate that is guaranteed to stay at the same level for five years or more, no matter what happens to wider interest rates.
Unless you are one of the lucky borrowers on either a super-low term tracker rate or one of the very few SVRs still at just 2.5%, it could well be worth you looking into remortgaging. You might be surprised at how the market has changed.
Below are the pick of the bunch:
|Tesco BS||Two-year fix||1.74%||£1,300||60%|