LONDON, UNITED KINGDOM -- (Marketwire) -- 03/05/13 -- - At the end of 2012, remortgaging activity in the UK was just a quarter (24%) of the levels at the start of 2008.
- Between January 2008 and October 2008, the number of remortgages accounted for half (51%) of total mortgage lending.
- From November 2008 to July 2011 the number of remortgages accounted for two fifths (39%) of total mortgage lending whilst fixed rates were on average above SVR.
- Since the end of last summer there has been a slight revival in remortgage activity (rising by 7% Q4 on Q3) as average fixed rates fell below the average SVR.
- Lloyds TSB is on hand to help with remortgage rates reduced by up to 0.25%, a free switching service and GBP 500 cash back for current account customers.
According to the latest analysis from Lloyds TSB, borrowers may no longer be better off staying on standard variable rates (SVRs). Since late 2008, falling SVRs lessened the gap with fixed rate mortgages and significantly reduced the incentive for many borrowers to remortgage. However, given the recent fall in fixed rates, some homeowners may find a better rate by remortgaging.
Whilst the total number of remortgages in 2012 was 12% lower than in 2011, there were some signs of improvement in the latter part of the year with a 7% increase in remortgaging activity between the third and fourth quarter.
The fall of SVR below fixed rates
Historically, remortgage activity has typically been driven by borrowers replacing their fixed home loans at the end of their term to avoid moving on to an SVR. This is because SVRs, on the whole, were more expensive and brought uncertainty over future monthly payments. However, this changed in recent years as interest rates fell to an all time low.
SVR on the rise, fixed rates on the fall
Even though SVR rates have generally been higher than fixed rates since August 2011, remortgaging activity on the whole has remained subdued, averaging 29,700 per month (37% of total mortgage lending). Over this period, the average SVR rate was 24bps more than average fixed rates (Fixed rates 3.96%; SVR 4.20%).
With fixed rates falling since August 2012, the incentive to remortgage should have increased. For example, if a homeowner took out a 2-year fixed rate in December 2012, their monthly payment would be GBP 519; in the same month the payment on an SVR mortgage would have been GBP 548.
Lloyds TSB cuts the cost of remortgaging for current account customers
Lloyds TSB is reinvigorating the remortgage market by reducing the rates on a number of its remortgage deals by up to 0.25%. As well as taking advantage of the free switching service which removes the hassle and expense of remortgaging, Lloyds TSB current account customers can also benefit from GBP 500 cashback(2).
The offer includes:
- GBP 500 cashback for Lloyds TSB current account customers
- Remortgage rates reduced by up to 0.25% offering lower rates than many SVRs
- Free switching service available with a dedicated team of mortgage and protection advisers to guide customers through the process
- No mortgage account, product, valuation or conveyancing fees - potential cost savings could total up to GBP 2,000(3)
For example, a customer on a typical SVR of 4.38%(4) based on a GBP 100,000 loan would have a monthly mortgage payment of GBP 549. If the borrower switched to a remortgage rate of 3.34% with Lloyds TSB, their payments would drop by GBP 57 to GBP 492 per month. Over the term of the mortgage, they would save at least GBP 3,418 on a fixed rate compared with the SVR(5).
The numbers around remortgaging
The sharp drop in remortgaging has coincided with both a decline in SVR rates and a reduced differential between SVR and fixed rates.
At the end of 2012, remortgaging activity in the UK was just a quarter (24%) of the levels at the start of 2008 - 28,200 remortgages in December 2012 compared with 116,600 in January 2008. This fall of 76% was almost twice the 40% decline in house purchase mortgages over the same period.
Between January 2008 and October 2008, the number of remortgages declined to an average 86,800 per month, accounting for just over half (51%) of total mortgage lending(6). In the same period, fixed rates were 113 basis points (bps) below the average SVR (Fixed rates: 5.97%(7), SVR: 7.11%).
From November 2008 to July 2011, the number of remortgages fell further to an average 30,000 per month, accounting for two fifths (39%) of total mortgage lending. During this time, on average, SVR rates were 52bps lower than fixed rates, therefore significantly reducing the incentive to remortgage (Fixed rates 4.66%; SVR 4.13%).
Since the end of last summer there has been a slight revival in remortgage activity (rising by 7% between quarter 3 and quarter 4) as average fixed rates fell by 41bps (from 4.25% in August to 3.84% in December).
Stephen Noakes, Mortgage Director at Lloyds TSB, comments:
"With SVRs at historically low levels, many homeowners have actually found their mortgage payments have reduced at the end of their term and the incentive to remortgage has been reduced. However, as we start to see fixed rates dropping, prudent borrowers taking stock of their home loans could benefit from their monthly payments falling further.
"The Lloyds TSB switching service guarantees to take the hassle out of remortgaging. With our new rates and GBP 500 cash back for Lloyds TSB current account holders, now is the time for homeowners to consider the benefits of remortgaging."
(1) For example, the average monthly payment of a homeowner who took out a 2-year fixed rate in January 2008 on a GBP 100,000 loan would have been GBP 645. If the borrower reverted to an SVR at the end of this period, their payments would have dropped by GBP 113 to GBP 532 per month. Over the next 19 months (to July 2011), they would have saved GBP 820 by dropping on to the SVR.
(2) Customers must pay more than GBP 1000 in to their current account per month. Cashback is paid on completion
(3) Lloyds TSB offer a range of mortgages with:
- No Mortgage Account Fee (normally GBP 265)
- No mortgage product fee (normally GBP 995)
- No char ge for valuations when taken through Lloyds TSB (typically between GBP 200 and GBP 300)
- Basic legal costs paid for when using Lloyds TSB conveyancing (typically between GBP 300 and GBP 500)
- A total cost saving of over GBP 2,000, depending on the product
(4) Average SVR at January 2013
(5) The saving would increase should there be a rise in the Bank of England Base Rate
(6) All transactions - housing purchases, remortgages and other loans
(7) Fixed rate series is a weighted average of all reported rates. Figures may vary slightly due to rounding
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