Around 32 per cent of brokers said that they had been contacted by clients about a mid-contract remortgage and had saved money despite early repayment charges (ERC), according to the latest Mortgage Solutions poll.
Meanwhile 34 per cent said that they had been contacted about a mid-contract remortgage, but ERCs had negated any savings. The remaining 34 per cent said clients had not been in touch about refinancing early.
Recent figures from research company CACI said October was the biggest month for remortgage maturities this year, with £38.9bn of business up for renewal.
This is expected to increase in January with £39.6bn of remortgage business predicted to come to the market.
Research from L&C Mortgages also showed that mortgage borrowers could be overpaying by £2,500 if they let their loan revert to the standard variable rate (SVR).
MB Associates’ sales manager Phil Leivesley said: “I’m not surprised by the poll results as we’ve spoken to numerous clients for whom it’s worthwhile switching to a new product, even if there is an ERC to pay, but there are plenty of clients where the saving does not justify the penalty.
“Whether this is worthwhile or not is dependent upon each individual client’s situation. Interest rates on mortgages are currently the lowest they’ve ever been, but they’ve been generally low for the last couple of years.”
He added: “It’s only within this time where five-year fixed rates have become more keenly priced so, anecdotally at least, those who took out five-year fixed rates more than two years ago are the ones who are most likely to benefit from remortgaging within their current fixed term.”
Rising property values outweigh ERC cost
L&C’s associate director for communications, David Hollingworth, said the poll results showed what a “finely balanced decision” remortgaging could be for borrowers as they weighed up falling rates with ERCs in their current deal.
He said: “There’s a lot of moving parts involved for a customer, and much will depend on the size of the ERC, how long it remains in place for, as well as the current interest rate and potential rate on a new deal.
“In many cases, the ERC will be substantial enough to rub out any savings that could be made over the remaining tie-in period. However, where the homeowner has seen some sharp rises in the value of their property they could find that they now qualify for a lower loan to value (LTV) band which will help to boost the differential in rates.”
Leivesley echoed this and added that as property values have continued to grow, those looking to remortgage could secure a lower LTV product and qualify for lower rates that would justify paying the ERC.
He said: “I’d stress that a borrower should always consult a mortgage broker before making such decisions, as the broker will be able to access the new products that are available and work out whether changing during their tie-in period is beneficial.”
Customers remortgaging looking for longer-term fixed rates
According to Habito’s chief financial officer Martijn van der Heijden, rising household finances due to increasing energy costs, food prices and National Insurance payments would encourage more people to lock into a longer fixed deal to secure a lower rate.
He said: “As mortgage brokers, we’ve all seen the record-low, headline-grabbing deals of under one per cent to be had for two-year fixes, but these will not protect homeowners from any increase in mortgage prices for very long.”
He added that customer data from July and August showed a six per cent rise in remortgage submissions and continued to move away from a two-year fixed rate to five-year fixes or longer terms.
He pointed to the launch of longer term fixed rate deals such as Habito One, where the rate is fixed for the whole mortgage term and there are no ERCs from 10 to 40 years.
“From speaking to customers, we know that they are wise to the real possibility of rising interest rates by the time they remortgage again in the future,” he said.
Timing is crucial
Hollingworth added that the timing of a remortgage was vital as ERCs reduce each year and waiting just a few months could “slash the penalty and open up more options for the customer”.
He said: “However, the shorter the period of time remaining on the lock-in period, the less likely it is that they will be able to make an adequate saving to make an early switch worthwhile. It’s clearly another area where many will be in need of advice in order to work through whether there could be benefits, rather than simply being drawn by low headline rates.”
Van der Heijden added: “For those homeowners with mortgages with initial rates that have expired already and are on their standard variable rate, or which will end in the next six months, they should start looking for new deals now, to give themselves as much time and choice before their deal ends, to compare rates and switch to save.”
