The Council of Mortgage Lenders announced figures earlier this week that suggest the current level of mortgage holders choosing to refinance their current deals is at its lowest for 15 years. Activity in this area continued to be far reduced than historically seen, with re-mortgage business accounting for 316,000 loans worth an estimated £14 billion. In 1997, the figure stood at 293,000 loans, at a total value of £14 billion.
All of this comes at a time when re-mortgage rate options for contractors are at the lowest level they have ever been. Since the advent of the Funding for Lending scheme in mid-2012, mortgage lenders have created an air of competition in the market place, with rates tumbling through much of the first quarter of 2013.
Over the past 6 months, the average 2 year fixed rate for those with a loan to value of 60-70 per cent has dropped by over 1.5 per cent in the vast majority of cases. Where rates at this level previously stood at 3 per cent and over, currently Santander offer a 1.94 per cent 2 year fixed, one of the lowest interest rates to historically be offered for a fixed arrangement.
And they are not alone in this, as many lenders have reacted to market demand for these savings to be passed onto contractors. Halifax currently offer a 2.09 per cent 2 year fixed, which projects the deal into the best value category for short term fixed deals in the market. Although these deals will only benefit a limited sector of the market, banks have finally listened to calls for higher loan to value rates to be reduced. Clydesdale Bank reduced their 80 per cent loan to value rates to as low as 3.09% in March, which encouraged a wave of similar reductions across the lending sector.
Even with the increased level of activity in this area, figures have remained low for a market that is continuing to show signs of improvement for the first time since the financial crisis hit in 2008. Of the 6.9 million mortgage deals agreed in 2005 that still remain in existence in 2012, just 14 per cent had since refinanced their lending. In the same 8 years, just 2 per cent had chosen to restructure their debt more than once.
Simon Butler of Contractor Mortgages Made Easy explained what the lack of activity suggests: “Many mortgagors chose to tie into longer term fixed deals towards the end of 2008 and early 2009, as the early signs were that the market would continue to get worse. What actually happened, as most now know, is that the Bank of England base rate tumbled to the present level of 0.5 per cent. What this has now created is a market where those that gambled at the time were extremely fortunate in that they have been sitting on tracker deals of 0.5-1 per cent above the BBR for the past 4-5 years, while the unlucky long-term fixers are enviously eyeing what could have been.”
Butler continued to say, “Although the time to switch deals may not be there for all existing borrowers, those that have previously been rejected should consider a couple of key points. Firstly, lenders are heading pressure from the government and the Financial Conduct Authority to lend. Over the past couple of months lending criteria has begun to loosen, so there may now be the chance that many contractors who have previously been shut out of the market could now refinance their debt for a better deal.
“The other point is that the base rate will have to rise at some point over the next 12-24 months. Most economists disagree on the chances of this, but it will happen at some stage soon. With an influx of good value longer term fixed deals becoming readily available at all loan to value levels, there has never been a better time to consider securing a new deal. The trick is deciding when it will be the best time to make a move."
Article by: Lucy Edmunds, Media Executive at Contractor Mortgages Made Easy
Media Contact: Raman Kaur, Public Relations Manager
Tel: 01489 555 080