Brokers report that UK homeowners are refinancing their mortgages in a rush, as they lock-in deals amid concerns about interest rates rising further. They had been waiting to see if the cost of debt would ease.
Knight Frank Finance reported that the value of new remortgages it wrote in May and June was up 41 percent compared to the two previous months.
Moneybox Home-buying is an online mortgage provider. In June, remortgage applications rose above the monthly average to 17 percent of all mortgage-related requests.
Simon Gammon is the founder and managing director of Knight Frank Finance. He said that there has been a significant shift in borrower behavior over the last month. It’s now: “Oh my goodness, I have to get one before they disappear even though the rate is not to my liking.”
Mortgage rates have been rising sharply over the past few weeks, which has put pressure on UK homeowners in the face of high inflation.
Moneyfacts reports that the average cost of a fixed-rate five-year mortgage reached 6 percent last week, for the first since November. This was after Liz Truss’s “mini” Budget, which she presented as former prime minister in November, caused turmoil on the financial markets.
Analysts said that the Bank of England’s successive interest rate increases in an attempt to curb inflation have dampened expectations of a continuous fall in mortgage rates throughout this year.
Investors have predicted that interest rates will reach 6.5 percent by March next year, the highest since 1998. Many mortgage holders are locking in fixed-rate remortgaging agreements in case borrowing costs rise further.
Nicholas Mendes, manager of mortgage broker John Charcol said that “a significant number” of people had decided to delay remortgaging towards the end of the last year, in the hopes of rates dropping back to closer to 3%.
He said that the advice given was to switch over to a fixed-rate mortgage when rates dropped. “Now that rates are 6 to 7 percent, people say that it’s higher than they expected. We’ve heard the same people come back and tell us that they can’t afford this if that is the case.”
Analysts said that recent remortgaging was also fuelled by fears of lenders withdrawing mortgage products.
In September last year, several lenders pulled some of their products from the market. Many temporarily stopped new lending in order to avoid being overrun by demand.
Lenders did not repeat that wholesale withdrawal of mortgages, but they have raised prices in the last few months to keep pace with rising interest rates. They also wanted to avoid an increase in homebuyer applications.
HSBC and Lloyds increased rates on certain fixed-term mortgages on Monday.
Brokers said that the majority of homeowners who are remortgaging their homes opt for deals with a fixed rate of two years over those fixed at five, in the hopes that inflation and rates will be substantially lower by 2025.