Cheap loans and high house prices combine into remortgaging boom
09-01-2015
Home owners are using record low interest rates to take cash out of their newly-valuable properties
High prices and low borrowing costs are encouraging home owners to release cash from their properties Photo: Howard McWilliam
By Tim Wallace
Home owners are borrowing record sums as ultra-low interest rates and rising house prices mean they can afford to take more money out of their properties without overstretching themselves on monthly mortgage repayments.
The combination has pushed the average remortgage value up to £170,094 according to leading brokerage the Mortgage Advice Bureau, a rise of 5pc in 2015 so far.
The average loan to value ratio on those loans is also rising, from 54.9pc at the start of the year to 56.5pc in July.
That has risen as prices rocket – the average value of a home where the owners are remortgaging is up from £296,308 in January to £300,898 in July.
It comes amid a wave of remortgaging as property owners are also keen to lock in low interest rates before the Bank of England increases the base rate, a move which is expected to happen in the next 12 months.
Banks approved more remortgage loans in July than at any point in the past four years, with 24,400 home owners getting a new loan. That figure is up 29pc on the year, according to the British Bankers’ Association.
The combined value of those loans hit £4.1bn in July, up from £3.1bn in the same month of 2014.
The proportion of remortgage borrowers fixing their loans is up from 87.5pc in January to 89.7pc now, the Mortgage Advice Bureau said.
Rates on remortaging products are currently at a record low. The average five-year fixed rate loan costs 3.29pc, down from 3.77pc at the start of the year. The average two-year fix costs 2.76pc, down from 3.19pc over the same period.
Mark Carney, governor of the Bank of England, walks out of a meeting during the International Monetary Fund (IMF) and World Bank Group Annual Meetings in Washington, DC, US
Bank of England governor Mark Carney has indicated that interest rates will start to creep up inthe next 12 months Photo: Bloomberg News
“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,” said the Mortgage Advice Bureau’s Brian Murphy.
“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.”
Last week some commentators feared stock market turmoil originating in China could derail global economic growth and force central bankers to hold interest rates down for longer. But Bank of England governor Mark Carney said the British economy is not hugely exposed to any slowdown in China.
“Developments in China are unlikely to change the process of rate increases,” Mr Carney told a conference of monetary policymakers in the US.