23% increase in remortgaging is about more than replacing expiring fixed deals.

Remortgage numbers hit a decade high in July. Reporting a 23% year-on-year jump, the banking and finance trade association UK Finance attributed the increase to borrowers “pre-empting the latest rate rise”. Our own remortgage caseload echoes the UK Finance report in terms of growth but shows a much wider variety of reasons for borrowing. Some of our clients are investing in their own businesses or in the stock markets. Some are building house extensions or helping their offspring to buy their own house. Some are planning to move themselves, but opting for “relaxed bridging” (about which more later). Common to all who are not simply replacing an expiring fixed deal, is that the advent of widely available, long-term low rates, has prompted home owners who might, in the past, have turned to other sources or not borrowed at all, to use remortgaging as a  tool for financial management.

Five years fixed most popular


Most Private Finance clients who are replacing an expiring deal, had previously fixed for two years. Replacing like-for-like, we’d aim to get them our best current two year rate, of 1.39%. But with five year and ten year rates of just 1.83% and 2.39% respectively – possibly the lowest ever differential in modern times –  the price of longer term security is too good miss. For the first time in our experience, five year fixed is now the most popular option.

The attraction of these low, longer-term rates is so strong that home owners who would not normally consider remortgaging, are boosting demand, accounting for at least 20% of our remortgage clients. This is intentional: having at last shored-up their capital balances, lenders actively want to lend, especially to the fast-growing number of ‘baby boomers’ who have 100% equity and no shortage of uses for cash. Those uses include simply placing the money at a higher rate elsewhere and, for the more adventurous, active investment in the stock market.

HT, stamp duty & family


More commonly, remortgaging to raise cash, is a response to family needs and tax incentives. Lots of owners have adult children who need financial help to buy their first house. Releasing equity provides that help and, depending on parental age and repayment arrangements, can be used to reduce inheritance tax liabilities, without the high final costs often associated with equity release schemes (see Retirement Interest Only mortgages below). Just as often, we are securing loans for owners who had intended to move to a better house in the same area, only to then look at the transaction costs. With stamp duty alone on, say, a £1.3 million purchase coming in at £73,750 or more, their understandable reaction has been to picture what could be done to improve their existing house with that sort of money – and then do that, rather than move. High stamp duty might have brought pain for estate agents, but it has brought nothing but pleasure for specialists in loft conversions, house extensions, subterranean rooms and garden cabins.

‘Relaxed bridging’


Finally, we also have clients remortgaging because they definitely want to move, but want to do so in a way which gives them control without pressure. Remortgaging allows them to find what they want, move fast (and negotiate hard) when they find it, then sell at leisure. Most will have to pay the extra 3% stamp duty payable on a second home but, provided they sell their previous main residence within 36 months, should be able to claim that back.

Remortgaging is not entirely risk free: you do, after all, have to pay the money back. But with longer term fixed rates as low as they are, those risks can be determined and contained, and the cash raised used to realise even longer-term benefits.

Scenarios
A. 75 year old couple remortgaging withRetirement Interest Only loan of £300,000, being 40% of property value. Monthly income sufficient to cover monthly cost comfortably.

Five years fixed at 3.74% (£935.00 per month)
Indefinitely thereafter at 5.69% (£1,422.50 per month)
Arrangement fee: £999

B. 50 year oldworking woman remortgaging for £300,000, being 40% of property value. Monthly income sufficient to cover monthly cost comfortably. 20 year term.

Five years fixed at 1.83% (£1,493.63 per month)
Thereafter SVR of 4.74% (£1,937.03 per month)
Arrangement fee: £1,995

or

Ten years fixed at 2.39% (£1,573.68 per month)
Thereafter SVR of 4.74% (£1,937.03 per month)
Arrangement fee: £1,995

C. 45 year old couple wanting ‘relaxed bridging’ to remortgage their existing £1 million house to raise £800,000. Monthly income sufficient to cover the monthly cost comfortably. 25 year term but intend to pay off within two years (so lack of penalty for early repayment is important).

Flexible for term product at 2.25% (£1,500 per month)
Arrangement fee: £999

Your home may be repossessed if you do not keep up with repayments of your mortgage

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