Demand for longer term fixed rate mortgages rises in the UK
Demand for longer term fixed rate mortgages rises in the UK : Over the last 12 months, the remortgage market in the UK has transformed with demand for fixed deals surging while the popularity of variable remortgages has plunged, new research has found.
Demand for variable products fell to just 5% of the market share in October compared with 19% in the same month in 2016, according to the latest report from conveyancing service provider LMS.
The report says that trend has been driven by borrowers’ priorities shifting as expectations of an increase in the Bank rate have grown, transforming the landscape of the remortgage market.
With hikes predicted to continue for the next decade, consumers’ focus is centring, more and more, on security, on locking-in low rates while the opportunity still exists.
This has seen the popularity of longer term fixed rate deals surge. Indeed, demand for five year fixed deals made up a record 50% of all of October’s remortgage transactions, over double the 19% seen in the previous year.
But, the report explained that as priorities have shifted, so demand for variable rate deals has declined in turn, their variable nature unable to offer the security that consumers’ currently seek.
The remortgage market has been buoyed by the search for certainty and security. LMS’ figures show October’s remortgage market was the second busiest since the financial crisis, with 40,590 remortgage transactions and over £7 billion lent. When seasonally adjusted, the Bank of England’s recent report highlights that the number of transactions rises to 51,593, the highest since October 2008.
‘Borrowers identified that a rate rise was likely, and many smartly capitalised on the situation. This activity drove remortgaging volumes to peak, with the highest remortgage numbers since 2008,’ said Nick Chadbourne, chief executive of LMS.
‘There will be interesting times ahead as the Bank of England hint at a long stretch of rises, I suspect many more consumers will opt to fix deals while rates are rock bottom and the market will continue to flourish for the foreseeable future,’ he pointed out.
‘Lenders are tweaking their product portfolios to respond to changing consumer demand and remain competitive. With variable products unable to deliver the security consumers are seeking, this means fixed rate products are set to stay at the top of the leader board for the foreseeable future,’ he added. The research also shows that in October a record 78% of remortgagors predicted that interest rates would rise over the next year. This is a dramatic change in attitudes from just the previous month, when only 56% of remortgagors made the same prediction.
Even before June’s Monetary Policy Committee meeting when three of the nine members voted for a rate rise consumer anticipation was steadily increasing and in the six month period between September 2016 and February 2017 the number of borrowers who expected rates to rise within the year rose from 14% to 49%.
‘Variable rates do offer a number of benefits that borrowers should consider when they’re getting a new mortgage including flexibility, low fees, and low deposits. But with Brexit looming on the horizon, the market retains a degree of unpredictability,’ said Chadbourne. ‘It’s hard to ignore the attractiveness of fixed rate products at the moment. November’s rate rise ended 10 years of falling rates and may well have fired the starting pistol on a decade of increases. Given how easy conveyancing and remortgaging is now, thanks chiefly to technological innovation in the sector, and with these hikes set to continue it is difficult to imagine that this surge in activity will disappear any time soon,’ he added.
Unattributed – Source