New research from LMS has revealed that homeowners are moving away from short-term deals and variable rates and onto five-year fixes as 98% expect interest rates to either stay the same or rise in the next year.
According to LMS, fewer homeowners remortgaged to lower their monthly repayments in July – just 15% compared to 21% in June, and just 15% remortgaged to increase the size of their overall loan – a fall from 19% in June.
Instead, over a third (37%) fixed onto a five-year deal in July – the greatest since numbers were first tracked – and a massive increase from 7% who previously had a fixed five-year product.
The total number of people remortgaging their home in July increased by 12% from 34,300 in June to 38,348.
The increase in remortgaging activity was driven by improved affordability in the previous month. The average annual repayment fell from £8,197 in May to £8,080 in June. Meanwhile, the percentage of total income that the average annual mortgage repayment accounted for dropped to its lowest level this year, from 17.5% in May to 17.1% in June.
Additionally, the average mortgage rate in July was 2.07% – significantly lower than the average rate of 2.41% in July 2016.
Andy Knee, chief executive of LMS, commented: “We are seeing a significant change in consumer behaviour when remortgaging. Typically, over the last year, people were remortgaging to save on their monthly repayments or borrow additional funds. Instead, with rates low and expectations of a rate rise high, people are fixing for longer for added financial security. Borrowers are taking shelter from future rate rises and preparing for potentially turbulent times to come. The way people borrow is changing, there is a significant decline in interest-only and variable rate deals, and fixing for longer appears to be the top priority. It’s a flight to financial security.
Remortgagors benefitted from a bumper month in July as affordability improved to a yearlong high. This propelled overall activity. With interest rates still low and lenders competing with one another to offer customers the best possible deal – there has never been a better time to remortgage in 2017.”