Britain’s remortgaging pain is only getting started
THOUSANDS of households in the UK have a decision to make, ahead of a bumper remortgaging deadline: lock in a pricier fixed-rate deal, or bet on an interest-rate cut by the Bank of England (BOE).
As many as 56,220 two-year fixed-rate mortgages are due to expire in September, according to data from industry body UK Finance. This comes on the back of a flurry of sales in September 2021, when homebuyers were racing to complete deals before a stamp-duty holiday ended.
The BOE’s bid to curtail inflation has increased mortgage costs, prompting Britons to turn to other corners of the home-loan market in an attempt to cut bills. That has brought an end to the shift towards fixed-rate mortgages. Households are turning to tracker deals – a type of variable loan which typically follows interest rates – in a bet that the central bank will finally slash borrowing costs at the end of this year.
The average two-year fixed-rate mortgage was 5.32 per cent on Tuesday (Apr 11), said Moneyfacts Group. This was more than two times higher than in September 2021. In contrast, the average two-year tracker deal was 5.05 per cent this week, meaning cheaper monthly payments for variable loan holders, even after a lengthy hiking cycle by the BOE.
“The financial markets currently expect the bank rate to peak around 4.5 per cent in August this year, before starting to fall back,” said Anthony Codling, who runs property website Twindig. The central bank “is hoping that if we take stronger medicine today, we will have a more comfortable life in the future”, he added.
Still, homeowners remortgaging on a fixed-rate deal are likely to benefit from a lower loan-to-value (LTV) ratio than when they first secured a mortgage. That is because UK house prices have grown by more than 11 per cent since March 2021, said the Nationwide Building Society, and households have paid off a chunk of capital over the last two years.
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Crucially, high-LTV lending makes up only a small fraction of UK mortgages. BOE data showed that 90 per cent or higher LTV deals accounting for just about 5 per cent of all new home loans in the last quarter of 2022.
Iwona Hovenko, an analyst covering European real estate for Bloomberg Intelligence, said that even those borrowers who took out a 90 per cent LTV in September 2021 are likely to see higher costs cushioned by stronger wage growth.
“Homeowners who took mortgages at 90 per cent LTV in 2021 could now see it drop to 75 per cent,” she said.
“The extra post-tax pay after just two years could more or less offset the cash increase in monthly mortgage repayments.” BLOOMBERG
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