Remortgaging: is now the best time?

Many homeowners may be in their strongest position to remortgage in more than two years thanks to a recovery in property prices. Kevin Rose explains

There's been a recovery in property prices since April which has left homeowners in a stronger position. Many may be in the best position to remortgage in more than two years, especially as lenders offer better rates to people with more equity.

Several mortgage experts believe that borrowers who are on their lender's standard variable rate (SVR) should think about remortgaging now – especially as the only plausible direction for bank base rate to move is up.

That's a return to the situation before the credit crunch, when conventional wisdom dictated that anyone on their lender's variable rate could get a better deal elsewhere and should remortgage. However, the banking crisis and record low bank base rates turned that on its head with most people better off sticking with their existing deals.

Data from the Council of Mortgage Lenders (CML), shows that remortgaging accounted for less than a third of all mortgage lending in October 2009, the lowest it has been since the CML started recording data in 2002.

The equity situation has improved over the past nine months because of house price rises, so much so that brokers and lenders believe most borrowers would now fall into a lower loan-to-value (LTV) bracket if they were to remortgage, increasing their ability to find a competitive rate.

Research by HSBC lender FirstDirect for The Independent shows that for an average house bought in October 2006 for £168,101, with a 20 per cent deposit (80 per cent LTV), the subsequent fall in house price values would have meant the LTV on the outstanding balance – £126,773 – would have risen to 82.98 per cent in April 2009.

But the partial recovery in property prices means that the borrower's equity would have improved by October 2009, as the LTV on the outstanding balance fell to 78.42 per cent, giving the homeowner a rise in equity of more than 4.5 per cent in six months.

The situation was even more marked for those who bought in September/October 2007, just before the crash in property prices. By then the average house price was £183,000, but a borrower with 20 per cent deposit would have seen their equity fall to just 7.14 per cent by April 2008. That would have risen to 12.16 per cent by October.

FirstDirect says a homeowner who bought their property between 2005 and 2007 has improved their options to remortgage since the slump in prices in April because they can now access a lower rate mortgage as they have moved into a lower LTV bracket.

Jimmy Kelly, head of mortgages for First Direct, says the lender's analysis shows how important the rebound in house prices has been for existing homeowners. "Whether they have any intention to sell or not, rebuilding the equity in their homes is an essential element in gaining access to lower rates when they come to remortgage," he said. "If homeowners have a concern that house prices may fall in the New Year, now would be a good time to remortgage and capitalise on the improved level of equity they hold."

Melanie Bien, director of mortgage broker Savills Private Finance, says borrowers considering remortgaging should do so sooner rather than later, as Savills predicts property prices to fall by about 6 per cent over 2010.

"Whether you should remortgage depends on your current situation. If you are enjoying an extremely cheap standard variable rate – anything around 3 per cent or less – you may be tempted to stay put for now. Although interest rates could start to rise towards the end of the year, they will only do so slowly so even with a couple of quarter-point rate rises, you will still have a very competitive mortgage rate.

"Those on a higher SVR – say 5 or 6 per cent – should remortgage now as they could get a more competitive rate."

Katie Tucker from Mortgageforce says interest rates are unlikely to stay at their record low levels and that borrowers need to do some calculations before rates start to rise.

"Remortgagers with as little as 15 per cent equity have far more choice at a rate under 5 per cent than they did a month ago. However the later it becomes, the more likely it is that bank rate will be increased pushing the price of your choices up. Those loitering on their lender's variable rate should consider what extra cost they could incur over the next two years should bank rate go up forcing them on to higher payments then higher remortgage deals; then decide from that whether it may be better value to tie down a year earlier. The peace of mind is the next biggest motive."

Ms Tucker cites the Consumer Price Index rise in November from 1.5 per cent to 1.9 per cent as evidence that the Bank of England could soon raise interest rates to manage inflation. Two-year "swap" rates, generally a fair indication estimate of what lenders perceive to be the average rate over the next two years have also crept up slightly recently, possibly suggesting that the lowest rates are on their way out.

Michael White, chief executive of broker Email Mortgages, fears that when bank base rate finally does rise – by whatever amount – there will be an "almighty rush" to remortgage because borrowers will sense that rates have bottomed out and will not want to be caught out by any substantial increases to the base rate.

He says: "When bank base rate does move it could move quite rapidly to a more "normal" band range of 3 to 4 per cent – this would leave many borrowers on their lenders' SVRs with particularly uncompetitive rates and a corresponding hike in monthly repayments. Borrowers would want to pre-empt that by remortgaging quickly."

Mr White says an increase in demand for remortgage products would test lenders' capacity and appetite to take on this remortgage business. "Lenders are still relatively risk-adverse which could leave many borrowers stuck and looking for a remortgage but forced to stay on an uncompetitive rate," he said. "Plus, there is likely to be a lot of borrowers who self-certified their last mortgage who find that these loans have been eradicated from the marketplace.

"Now would certainly be a time to look at your current options. There are some two-year tracker rates which look particularly attractive if you believe that bank base rate will not rise much in the next 12 or so months but will do after this period; otherwise a significant number of two-year fixed rates have been cut recently."

Katie Tucker says lenders will have also speculated on the probability of bank rate changes and priced their two year fixed deals accordingly. She says: "When choosing between a fixed rate and a variable rate the advantage in the price difference is cancelled out by the likelihood of Bank rate being increased; the total cost should realistically work out about evens."

PROMOTED VIDEO
Life and Style
techCould new invention save millions in healthcare bills?
Sport
David Moyes gets soaked
sport Moyes becomes latest manager to take part in the ALS challenge
Voices
A meteor streaks across the sky during the Perseid Meteor Shower at a wind farm near Bogdanci, south of Skopje, Macedonia, in the early hours of 13 August
voicesHagel and Dempsey were pure Hollywood. They only needed Tom Cruise, says Robert Fisk
News
peopleEnglishman managed quintessential Hollywood restaurant Chasen's
Life and Style
food + drinkHarrods launches gourmet food qualification for staff
Arts and Entertainment
Michael Flatley prepares to bid farewell to the West End stage
danceMichael Flatley hits West End for last time alongside Team GB World champion Alice Upcott
Life and Style
Horst P Horst mid-fashion shoot in New York, 1949
fashionFar-reaching retrospective to celebrate Horst P Horst's six decades of creativity
News
Members and supporters of the lesbian, gay, bisexual, transgender (LGBT) community walk with a rainbow flag during a rally in July
i100
Life and Style
Black Ivory Coffee is made using beans plucked from elephants' waste after ingested by the animals
food + drinkFirm says it has created the "rarest" coffee in the world
Arts and Entertainment
Jamie T plays live in 2007 before going on hiatus from 2010
arts + entsSinger-songwriter will perform on the Festival Republic Stage
Life and Style
food + drinkThese simple recipes will have you refreshed within minutes
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Service Desk Analyst- Desktop Support, Helpdesk, ITIL

    £20000 - £27000 per annum: Harrington Starr: Service Desk Analyst- (Desktop Su...

    Service Desk Analyst - (Active Directory, Support, London)

    £25000 - £35000 per annum: Harrington Starr: Service Desk Analyst - (Active Di...

    Junior Quant Analyst - C++, Boost, Data Mining

    £30000 - £50000 per annum: Harrington Starr: Junior Quant Analyst - C++, Boost...

    Junior Quant Analyst (Machine Learning, SQL, VBA)

    £30000 - £50000 per annum: Harrington Starr: Junior Quant Analyst (Machine Lea...

    Day In a Page

    All this talk of an ‘apocalyptic’ threat is simply childish

    Robert Fisk: All this talk of an ‘apocalyptic’ threat is simply childish

    Chuck Hagel and Martin Dempsey were pure Hollywood. They only needed Tom Cruise
    Mafia Dons: is the Camorra in control of the Granite City?

    Mafia Dons: is the Camorra in control of the Granite City?

    So claims an EU report which points to the Italian Mob’s alleged grip on everything from public works to property
    Emmys look set to overhaul the Oscars as Hollywood’s prize draw

    Emmys look set to overhaul the Oscars as Hollywood’s prize draw

    Once the poor relation, the awards show now has the top stars and boasts the best drama
    What happens to African migrants once they land in Italy during the summer?

    What happens to migrants once they land in Italy?

    Memphis Barker follows their trail through southern Europe
    French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

    French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

    The ugly causeway is being dismantled, an elegant connection erected in its place. So everyone’s happy, right?
    Frank Mugisha: Uganda's most outspoken gay rights activist on changing people's attitudes, coming out, and the threat of being attacked

    Frank Mugisha: 'Coming out was a gradual process '

    Uganda's most outspoken gay rights activist on changing people's attitudes, coming out, and the threat of being attacked
    Radio 1 to hire 'YouTube-famous' vloggers to broadcast online

    Radio 1’s new top ten

    The ‘vloggers’ signed up to find twentysomething audience
    David Abraham: Big ideas for the small screen

    David Abraham: Big ideas for the small screen

    A blistering attack on US influence on British television has lifted the savvy head of Channel 4 out of the shadows
    Florence Knight's perfect picnic: Make the most of summer's last Bank Holiday weekend

    Florence Knight's perfect picnic

    Polpetto's head chef shares her favourite recipes from Iced Earl Grey tea to baked peaches, mascarpone & brown sugar meringues...
    Horst P Horst: The fashion photography genius who inspired Madonna comes to the V&A

    Horst P Horst comes to the V&A

    The London's museum has delved into its archives to stage a far-reaching retrospective celebrating the photographer's six decades of creativity
    Mark Hix recipes: Try our chef's summery soups for a real seasonal refresher

    Mark Hix's summery soups

    Soup isn’t just about comforting broths and steaming hot bowls...
    Tim Sherwood column: 'It started as a three-horse race but turned into the Grand National'

    Tim Sherwood column

    I would have taken the Crystal Palace job if I’d been offered it soon after my interview... but the whole process dragged on so I had to pull out
    Eden Hazard: Young, gifted... not yet perfect

    Eden Hazard: Young, gifted... not yet perfect

    Eden Hazard admits he is still below the level of Ronaldo and Messi but, after a breakthrough season, is ready to thrill Chelsea’s fans
    Tim Howard: I’m an old dog. I don’t get too excited

    Tim Howard: I’m an old dog. I don’t get too excited

    The Everton and US goalkeeper was such a star at the World Cup that the President phoned to congratulate him... not that he knows what the fuss is all about
    Match of the Day at 50: Show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition

    Tom Peck on Match of the Day at 50

    The show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition