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The Rising Trend of Refinancing Mortgages in the UK

UK homeowners are scrambling to refinance their mortgages as borrowers who have been waiting for the cost of debt to ease as the deal closes amid fears that interest rates will rise further, according to brokers.

The value of new mortgages taken out by Knight Frank Finance was up 41% in May and June over the prior two-month period, the broker said.

Meanwhile, customers mutual Applications to Moneybox Homebuying, an online mortgage service provider, increased to represent 17% of its mortgage applications in June, above a monthly average of 11%.

“There has been a real shift in borrower behavior over the last month,” said Simon Gammon, founder and managing partner of Knight Frank Finance. “It changed to: oh my gosh I gotta get one of these deals before they go even though I don’t like the fare.”

Analysts’ Outlook on Mortgage Rates and Borrowing Costs

With investors assessing interest rates reaching 6.5 percent by next March, their highest level since 1998, many mortgage holders are opting to freeze fixed-rate mortgage operations, in case borrowing costs rise further.

Nicholas Mendes, manager of mortgage broker John Charcol, said “a significant number of people” had chosen to suspend mortgaging late last year in the hopes that rates would fall closer to 3%.

“The advice was to switch to a fixed rate when rates were going down,” he said. “Now the idea that rates of 6 to 7 percent is making people go, it’s higher than I expected. We’ve seen the same people come back and say, ‘I can’t afford it if that’s the case.'”

The Impact of Lender Actions on the Mortgage Market

Fears that lenders would withdraw mortgage products have also fueled the recent mortgage surge, analysts say.

Last September, many lenders removed some of their offerings from the market, and many temporarily halted new loans to avoid being overwhelmed by demand.

Most homeowners entering into remortgaging deals are opting for two-year fixed-rate contracts over five-year fixed-rate contracts in hopes that inflation and interest rates will fall substantially by 2025, i said. broker.

Summary

In recent months, UK homeowners have been rushing to refinance their mortgages amid increasing concerns over rising interest rates. Brokers have reported a significant surge in remortgaging activities, with new mortgages taken out experiencing a 41% increase compared to the previous two-month period. This trend is driven by borrowers who have been eagerly awaiting a reduction in the cost of debt before sealing the deal, as fears of further interest rate hikes loom.

Mortgage service providers have also witnessed a surge in applications, with the online provider Moneybox Homebuying reporting a 17% representation of mortgage applications in June, above the monthly average of 11%. Homeowners have realized the urgency in securing favorable mortgage deals, despite any reservations they may have about the current market conditions.

The sharp rise in remortgaging can be attributed to the recent increase in mortgage rates, which have reached 6% for five-year fixed-rate mortgages. This is the first time rates have reached this level since November, following financial market turmoil triggered by former Prime Minister Liz Truss’s “mini” budget. The Bank of England’s subsequent interest rate hikes to curb inflation have dispelled expectations of a steady decrease in mortgage rates throughout the year.

Investors are now forecasting interest rates to reach 6.5% by next March, the highest level seen since 1998. Consequently, many mortgage holders are opting to freeze their fixed-rate mortgage operations to safeguard against further increases in borrowing costs. Mortgage brokers have noted an increased number of individuals suspending their mortgage plans, prompted by the desire to secure lower rates similar to those seen in late 2021.

The mortgage market has also been influenced by the actions of lenders. Last September, many lenders withdrew some of their mortgage products and temporarily halted new loans due to overwhelming demand. As a result, homeowners seeking to remortgage are favoring two-year fixed-rate contracts over five-year fixed-rate contracts, with the hope that inflation and interest rates will subside significantly by 2025.

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We will send you a myFT Daily Digest email rounding last Re-mortgage news every morning.

UK homeowners are scrambling to refinance their mortgages as borrowers who have been waiting for the cost of debt to ease as the deal closes amid fears that interest rates will rise further, according to brokers.

The value of new mortgages taken out by Knight Frank Finance was up 41% in May and June over the prior two-month period, the broker said.

Meanwhile customers mutual Applications to Moneybox Homebuying, an online mortgage service provider, increased to represent 17% of its mortgage applications in June, above a monthly average of 11%.

“There has been a real shift in borrower behavior over the last month,” said Simon Gammon, founder and managing partner of Knight Frank Finance. “It changed to: oh my gosh I gotta get one of these deals before they go even though I don’t like the fare.”

The jump in remortgaging deals comes as mortgage rates have risen sharply in recent weeks, putting pressure on many UK homeowners amid high inflation.

The average cost of a five-year fixed-rate mortgage hit 6% last week for the first time since November after former Prime Minister Liz Truss’s “mini” budget unleashed financial market turmoil, according to the mortgage provider. Moneyfacts data.

Subsequent interest rate hikes by the Bank of England in a bid to curb inflation have allayed expectations that mortgage rates will fall steadily throughout the year, analysts said.

With investors assessing interest rates reaching 6.5 percent by next Marchtheir highest level since 1998, many mortgage holders are opting to freeze fixed-rate mortgage operations, in case borrowing costs rise further.

Nicholas Mendes, manager of mortgage broker John Charcol, said “a significant number of people” had chosen to suspend mortgaging late last year in the hopes that rates would fall closer to 3%.

“The advice was to switch to a fixed rate when rates were going down,” he said. “Now the idea that rates of 6 to 7 percent is making people go, it’s higher than I expected. We’ve seen the same people come back and say, ‘I can’t afford it if that’s the case.'”

Fears that lenders would withdraw mortgage products have also fueled the recent mortgage surge, analysts say.

Last September, many lenders removed some of their offerings from the market, and many temporarily halted new loans to avoid being overwhelmed by demand.

Most homeowners entering into remortgaging deals are opting for two-year fixed-rate contracts over five-year fixed-rate contracts in hopes that inflation and interest rates will fall substantially by 2025, i said. broker.