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UK homeowners are rushing to refinance their mortgages as borrowers who had been waiting for the cost of debt to ease lock in deals amid fears that interest rates will rise further, according to brokers.
The value of new remortgages written by Knight Frank Finance jumped 41 per cent over May and June compared with the previous two-month period, the broker said.
Meanwhile, customers’ remortgage requests at Moneybox Homebuying, an online mortgage service provider, rose to represent 17 per cent of its mortgage-related applications in June, above a monthly average of 11 per cent.
“There’s been a real shift in borrower behaviour over this last month,” said Simon Gammon, founder and managing partner at Knight Frank Finance. “It’s changed to: oh my goodness, I’ve got to get one of these deals before they go even though I don’t like the rate.”
The jump in remortgaging deals comes as mortgage rates have risen sharply in recent weeks, putting pressure on many UK homeowners against a backdrop of high inflation.
The average cost of a five-year fixed-rate mortgage hit 6 per cent last week for the first time since November after former prime minister Liz Truss’s “mini” Budget unleashed turmoil on financial markets, according to data provider Moneyfacts.
Successive interest rate rises by the Bank of England in an effort to curb inflation have quelled expectations that mortgage rates will fall continuously throughout this year, said analysts.
With investors pricing interest rates hitting 6.5 per cent by next March, their highest level since 1998, many mortgage-holders are choosing to lock-in remortgaging deals at a fixed-rate, in case borrowing costs climb further.
Nicholas Mendes, manager at mortgage broker John Charcol, said “a significant number of people” had chosen to hold off remortgaging at the end of last year in the hope that rates would drop back closer to 3 per cent.
“The advice was to switch to a fixed rate when rates were going down,” he said. “Now the idea of rates being 6 to 7 per cent is making people go, that’s higher than what I expected. We’ve seen the same people go back and say: ‘I can’t afford that if that’s the case’.”
Fears that lenders would withdraw mortgage products has also fuelled the recent remortgaging wave, said analysts.
Last September, many lenders removed some of their offerings from the market, with many temporarily stopping new lending to avoid being overwhelmed by demand.
The majority of homeowners snapping up remortgaging deals are opting for two-year fixed-rate deals over five-year fixed-rate deals in the hope that inflation and interest rates will have fallen substantially by 2025, brokers said.