Home Property Finance & InvestmentMortgages Motivation to remortgage is expected to increase

Motivation to remortgage is expected to increase

by LLP Reporter
24th Apr 19 6:27 am

The latest research from Moneyfacts.co.uk shows that the motivation for existing borrowers to remortgage from a lender’s standard variable rate (SVR) is increasing and is expected to reach a peak in October 2019. Borrowers who opted for a two-year fixed rate at an average rate of 2.30% in May 2017 could see their interest rate more than double when moved onto the average SVR of 4.89%.

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Further Moneyfacts.co.uk research shows that the average two-year fixed rate reached a record low of 2.20% in October 2017 and if the average SVR remains constant at 4.89%, the projected average difference in the revert rate will increase from 2.59% to 2.69% by October 2019, increasing the motivation to remortgage even further.

The chart below shows whether a borrower’s interest rate increased or decreased on reverting to a SVR on maturity of a two-year fixed rate mortgage.

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Darren Cook, finance expert at Moneyfacts.co.uk said, “Two years ago, the average two-year fixed mortgage rate fell notably, reducing from 2.31% in January 2017 to a record low of 2.20% in October the same year. The following month, the Bank of England increased base rate (from 0.25% to 0.5%) and the average two-year fixed rate increased to 2.35% by December 2017. In comparison, the average two-year fixed rate currently stands at 2.47%.

“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. For instance, a borrower on a repayment mortgage of £250,000 who locked into the average two-year fixed rate of 2.20% in October 2017, if then transferred onto the predicted average lender’s SVR of 4.89% in October 2019 will see their mortgage repayments increase by £4,336.20 per year (rate increase of 2.69%).

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“This significant increase in motivation for borrowers to switch mortgage deals, and the subsequent potential increase in remortgage business as a result, may push some mortgage lenders to marginally cut rates over the next few months to maintain a competitive edge.

“Indeed, the average two-year fixed rate has already fallen this month, from 2.49% in March 2019 to 2.47% today. However, as previous Moneyfacts.co.uk research has shown, this fall could be attributed to rate cuts at higher risk loan-to-value (LTV) tiers to attract first-time buyer business. It will therefore be interesting to see if the average rate falls further still as providers potentially to target remortgage customers, and therefore lower LTV tiers, as we approach October.”

Average two-year fixed rate mortgage Predicted average SVR at end of two-year deal 

(assuming that the average SVR remains constand and no Bank base rate changes take place)

Predicted increase in rate movement
May-17 2.30% May-19 4.89% 2.59%
Jun-17 2.30% Jun-19 4.89% 2.59%
Jul-17 2.26% Jul-19 4.89% 2.63%
Aug-17 2.23% Aug-19 4.89% 2.66%
Sep-17 2.22% Sep-19 4.89% 2.67%
Oct-17 2.20% Oct-19 4.89% 2.69%
Nov-17 2.33% Nov-19 4.89% 2.56%
Dec-17 2.35% Dec-19 4.89% 2.54%

Source: Moneyfacts.co.uk

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