Rise In Remortgaging Brought About By Record Low Base Interest Rate
The Bank of England’s record low base interest rate has propelled a rise in remortgages.
The mortgage processor Legal Marketing Services has released data showing a rise in remortgage transactions. The number of remortgages taking place is the highest since July 2009 and the year-on-year gross amount remortgaged has risen 40% since August 2015.
The Base Rate
On the 4th of August this year, the Bank of England announced a cut to its base interest rate from 0.5% to 0.25%.
Remortgages in August saw an increase of 45% annually and 8% since July. Homeowners used the cheaper environment for borrowing to refinance their loans.
Andy Knee, chief executive of L.M.S explains that this cut has had the effect of boosting mortgages but that fears remain over the wider economic future.
Loan Amounts Getting Smaller
Although more numerous, remortgages reduced their loan to value ratio, a key measure of a bank’s confidence from 58% to 54%. In August, the average amount loaned to each customer fell 6% to £162,263.
Mr Knee states that “homeowners appear to be in a more cautious mood than last month: borrowing less in the wake of a couple of turbulent months, both politically and economically”.
This year, customers have been remortgaging more frequently. The average length of customers previous mortgages has decreased by 8 months. Those who had waited for better conditions to remortgage saw the benefit in the interest rates available to them but Mr Knee argues that current conditions favour taking action.
Mr Knee believes that “with today’s favourable conditions it is no surprise to see eight months shaved off the average time that people wait to remortgage and there is plenty of incentive for more people to consider acting before the year is out.”
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