An increasing number of UK homeowners are likely to consider remortgaging when seeking to borrow, with an expected peak in activity to take place by October 2019, according to recent research by financial comparison group Moneyfacts.
The move is likely to be motivated by the fact that borrowers who locked-in low average rates on two-year fixed rate mortgages in 2017 will find interest rates are higher, when their fixed-term mortgages expire in 2019.
Moneyfacts claim that borrowers who could previously lock in interest of just 2.3 per cent on a two-year fixed rate mortgage in 2017 could face interest rates more than twice that figure; given that Standard Variable Rates (SVR) currently stand at 4.89 per cent.
Farewell to lower rates
One of the factors behind the general rise in rates is the Bank of England’s decision to raise interest rates since 2017. Base rate rose from 0.25 per cent in the summer of 2017 to as much as 0.75 per cent by early 2019.
This rate hiking has lifted the average two-year fixed mortgage rate from its 2017 low of 2.2 per cent to as much as 2.47 per cent in April 2019.
Darren Cook, finance expert at Moneyfacts explained: “Over the next six months, it is likely that many mortgage borrowers who secured a two-year mortgage deal two years ago may see their record low interest rate expiring and will have no intention to revert to a rate that could see their interest rate double overnight.”
Pressure on mortgage rates
Mr Cook explored the likelihood of homeowners seeking cheaper alternatives, saying: “If they remortgaged instead, their payments wouldn’t rise anywhere near as much…there’s a chance that the potential remortgage boost could cause mortgage rates to edge down in the coming months.”
In Mr Cook’s view, mortgage lenders might decide to reduce rates, in order to maintain a competitive edge, as the demand for remortgaging increases.
Looking ahead, Mr Cook concluded: “Indeed, the average two-year fixed rate has already fallen this month…It will therefore be interesting to see if the average rate falls further still as providers potentially look to target remortgage customers – and therefore lower LTV (loan to value) tiers – as we approach October.”