Borrowers could save over £2,000 per year as remortgage market revives
Following months of sluggish activity, the remortgage market experienced a long-awaited boost in January with applications up 24 per cent in the month and 17 per cent year-on-year, according to the National Mortgage Index from Mortgage Advice Bureau.
This beats an annual rise of 12 per cent in purchase applications as existing homeowners take advantage of the growing equity in their homes and record-low mortgage prices. The latter means switching can effectively deliver a pay rise of up to 4.8 per cent: twice the rate of annual wage growth.
Data from the Council of Mortgage Lenders (CML) shows remortgage activity was left behind in the market recovery last year; however, the outlook is looking far more positive for 2015.
With average house prices across the market rising 10 per cent annually, existing homeowners also benefitted from improved housing equity in January when they remortgaged. The National Mortgage Index shows the typical applicant put forward £133,719 of equity: 14 per cent more than in January 2014 (£117,345).
As a result, remortgage applicants are seeking lower loan-to-value (LTV) deals. The average remortgage LTV was 54.9 per cent in January, compared to 55.5 per cent in the previous month.
This puts them in a stronger position to take advantage of some of the better deals currently available on the market.
Using data from Moneyfacts.co.uk, borrowers can now save over £2,000 per year by moving to a more competitive deal, as the Index revealed that average mortgage rates continued to fall across the board in January for a fifth consecutive month.
January’s typical remortgage applicant had a salary of £47,881. This means the amount they would save is equivalent to a 2.8 per cent pay rise – or 3.8 per cent compared with a net salary of £34,912 after tax and National Insurance contributions.
Brian Murphy, head of mortgage lending at Mortgage Advice Bureau, comments:
“Remortgage activity fell behind last year as borrowers were placated by further delays to the base rate rise and lacked an opportunity or incentive to change their current deal. However, many people will find they could benefit from significant monthly savings by moving from their current product: particularly those who are on inflated SVRs.
“The current price war has been intensified by fierce lender competition and a number of new entrants to the market. Specialist lenders are now going head-to-head with traditional competitors and eye-catching product launches have become commonplace, giving rise to historically low rates.
“Many borrowers on their lender’s SVR can effectively give themselves a pay rise that beats wage growth simply by remortgaging. Remortgaging is often less hassle than people think, and the savings gained by moving from an outdated product are well worth the effort.
If you’re confused about the wealth of options available or the fees involved, seeking advice from a whole-of-market broker can help to identify the best deal for your circumstances.”
*Source: Bank of England quoted interest rates (Jan 2015). All other rates are from Moneyfacts.co.uk