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Remortgaging Slump: Borrowers Shun Bargain Rates

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Telegraph 1/10/14

'Britain's biggest lender is warning that borrowers are more reluctant than ever to remortgage, despite banks launching a flurry of low-interest deals.

The proportion of borrowers remortgaging fell 8pc in the six months to the end of June compared to previous periods, according to Lloyds Bank, part of the banking group that includes Halifax and other mortgage brands.

Research by the state-backed lender found that 194,000 remortgaged their homes over the spring period.

This represents just one in three customers who had a mortgage approved in the April to June period, compared with one in two back in the autumn of 2008.

Yet some of the rates on offer to remortgaging borrowers have been their lowest ever. Virgin Money, Metro Bank, Halifax, Barclays, Nationwide Building Society, HSBC, Skipton Building Society and Norwich and Peterborough Building Society were among lenders reducing their rates.

But rock-bottom fixed deals might not be around for long. Lenders are already thinking twice about joining the race to the bottom. Virgin Money recently launched a six year fix for less than 3pc - as reported here - that was withdrawn after just three days.

The deal was launched on Tuesday September 16, but disappeared by the following Friday, briefly putting the lender at neck-and-neck with best-buy five-year fixed deals from Metro Bank and HSBC.

We're remortgaging less - why?

Mark Harris, from mortgage brokers SPF Private Clients, said new affordability rules could be behind the slump in remortgaging. "They aren’t helping. Many borrowers are concerned that they will struggle to remortgage because their income has fallen, or the value of their home is less than it was, or they won’t meet new affordability criteria, so they are simply not bothering to try."

Mr Harris added that low reversion rates - the interest charged after the fixed deal ends - meant borrowers had less incentive to remortgage. He said: "Interest rates are at record lows, which means many borrowers are on very cheap reversion rates.

"Why move onto a higher fix? These borrowers will wait until a rate rise is imminent before remortgaging."

Borrowers: should I move to a higher fix?

While rates may seem like a good deal, especially to borrowers coming to the end of more expensive fixes, they are still more expensive.

It costs an average of 3.29pc to take out a fixed rate mortgage, while the standard variable rate is 4.45pc, according to July 2014 data from Lloyds Bank.

And variable rates are rising. At the start of the year, the standard variable was 4.41pc on average.

Marc Page, mortgages director at Lloyds, said that borrowers might consider fixing to pre-empt a rise in the Base Rate.

He said: "Reversionary rates are still very low and many favour the flexibility they offer.

"But as speculation continues about the timing of the first base rate rise others may prefer the certainty provided by a fixed rate product."

Recent research compiled for The Telegraph also showed that rate rises don't have to be bad news for borrowers, as long as they lock in their rates.

From 2008, the share of new mortgages which were fixed increased from 40pc to 80pc, according to the research by forecasters EY Item Club (see chart, below).'

If I had a mortgage I'd be in the ten year fix brigade.It says something that punters are staying on variables when fixes are cheaper-obviously fees considered.

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I think as the article states, a lot of people simply wouldn't get their current mortgage let alone a remortgage to MEW with due to the new affordability rules so what's the point in trying when it will probably put another mark on your credit record too?

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"..because their income has fallen..."

That's the killer for an awful lot of people.

No pay rises / pay rises not keeping up with inflation / losing overtime or losing a job and failing to find another / going self-employed and earning a pittance / taking another job with much lower pay.

All these things have happened to people I know, and the income statistics suggest they are far from being alone.

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1, People no longer believe rates will rise - how long have they been near 0%

2, Ever diminishing returns, little point remortgaging from 4% to 3% and incurring a £1500 fee

3, Outside London prices have not risen enough to give people a better LTV deal

As interest rates have not moved for so long it's killing volatility which is needed by the banks to make a profit. Banks need interest rates to rise a bit in order scare the sheeple into remortgaging.

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I have little intention of remortgaging unless the base rate shoots up to above 3% which I don't think will happen.

If I leave now I'm at the mercer of SVR.

Patrick?

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