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December is usually a quiet month for mortgages – but towards the end of last year, lending figures barely stuttered, and it is all thanks to the rapidly sinking average mortgage interest rate. Banks and building societies lent £18bn in mortgages in the final month of 2015, down from £18.7bn in November – but well up from the £14.7bn lent back in December 2014.
The 2014 Mortgage Market Review (MMR) made stress tests on borrowers’ ability to cope with higher interest rates compulsory, and mortgage approvals dropped as lenders adjusted to the changes. Now, lending is back to pre-MMR levels, with more than 70,000 loans for purchases approved in December alone. In total, buyers borrowed £12.3bn, up from £10.1bn in the same month of 2014.
It is not just buyers who are pushing the figures up. Homeowners looking to remortgage clocked up £4.8bn of loans, up from £3.8bn the previous year.
The average mortgage interest rate at the moment is probably lower than you think – indeed, lower than it has ever been – and this is what is driving the remortgage boom.
A hint of wage growth, low unemployment rates and the US’s rate hike had all raised expectations of a move by the Bank of England to raise the base rate from its historic low of 0.5%. Turbulent financial markets across the globe, however, have stayed Mark Carney’s hand.
All this means that the average mortgage interest rate has now fallen to 2.99%, the first time it has dropped below 3% in the 16 years the Bank of England has been measuring it. If you have a mortgage, and are paying more than that, you are almost certainly being overcharged – and could save money by remortgaging.
Of course, switching deals is a hassle. But if those few hours of effort are putting you off, bear in mind that your inertia could be costing you thousands of pounds a year.
If you haven’t started a new deal recently, you have probably reverted to your lender’s standard variable rate (SVR). A typical SVR stands at 4.18% at the moment – 1.82% more than average rates, which translates into a serious chunk of money each month. At the upper end of the scale, SVRs can be as much as 6.08% – and many borrowers are simply unaware they are at the mercy of such alarming numbers.
That’s all very well – but what if mortgage rates fall even further, you may well ask. Doesn’t it pay to wait to make your move until they have unequivocally reached rock bottom?
This is where engaging a mortgage broker like Enness gives you such a clear advantage. After we have applied for a product on your behalf, we will receive a formal offer; but we don’t have to commit to it straight away. The offer is valid for 3 months, meaning that if something better comes along in that time, we can switch to it – and you lose nothing. There is therefore no harm in getting the ball rolling early, particularly because these rates really won’t be around forever.
“December was the busiest month for remortgages in more than two years,” says Islay Robinson, CEO of Enness Private Clients. “Activity in this sector is accelerating at more than twice the rate of overall approvals. The average mortgage interest rate is still sinking, and homeowners are keen to capitalise on extremely favourable market conditions – and lock into low rates while they can.”
If you have any questions about this article, or the mortgage process in general, please do get in touch with Enness. One of our expert brokers will be happy to talk through your options with you.