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.”
The number of lifetime mortgage customers remortgaging fell by 34 per cent this year, according to mortgage broker Responsible Life.
Some 331 lifetime mortgage holders moved to new providers in the first quarter of 2021, compared with 498 in Q1 2020 according to latest figures obtained from the Financial Conduct Authority (FCA).
The pace of switching also fell 28.9 per cent in the year to March 2021, dropping from 1,824 to 1,297.
However, the rate at which homeowners are rebroking their lifetime mortgages has risen by 44 per cent overall in two years, up from 230 in Q1 2019 coinciding with the market seeing a big jump in remortgaging. Responsible Life said this was likely down to borrowers taking advantage of rates dropping between three and four per cent at that time.
Currently, around four in every 100 equity release customers are switching each year, out of more than 300,000 outstanding mortgages.
Steve Wilkie, executive chairman of Responsible Life, said: “Lifetime mortgages don’t stop people switching to cheaper rates and it’s not just older borrowers who can benefit.
“Long time customers may have seen rates fall furthest but younger retirees have the added advantage of a longer remaining mortgage term.
“Persistent misconceptions around the switching of lifetime products could be behind the slowdown in remortgaging that we’ve seen so far this year. The key message for consumers is that larger early repayment charges (ERCs) aren’t necessarily an obstacle to saving money and the younger you are, the less the interest rate needs to fall for switching to pay dividends.”
Scott Hendry, auction finance director at Together said: “We’ve seen a noticeable rise in property investors flipping property. Whether it’s an unusual property or in disrepair or you’ve got a very tight deadline, securing a bridging loan against the property for up to 12 months might be useful.
“This would allow you to complete the work they need to do and exit the short-term loan by selling the property – with investors expecting returns of up to 20 per cent on the most successful renovations.”
Bridging loans on the rise
Sundeep Patel, director of sales at Together, said although flipping had always been around, he had noticed an increase recently.
He added: “ Most, if not all, property investors seek a bridging loan for up to 12 months to ensure they can snap up a property, quickly refurbish it, before turning a profit via their cash buyers.
“Invariably property investors opt for specialist lenders to make this process as slick as possible. This need for quick decision-making on approvals to secure the best deals can however be a struggle for high street lenders.”
He added: “In addition, the high street has strict lending criteria and won’t offer finance on dilapidated properties – limiting the options for potential investors. In comparison, specialist lenders can grant financing for more complex properties – offering property investors even more choice when thinking about properties that can be transformed into homes. These include HMOs (houses in multiple occupation), old retail parks and disused office spaces.
“Whether we continue to see investors large and small seek quick profits – successful projects can accrue returns of up to 20 per cent – or whether this is just a minor trend in the post-pandemic market is not yet clear.”
Seeking the correct advice
Brokers said it was important for investors to get the right advice when flipping to make sure they were not left with a half-finished job and no exit.
James McGregor, director Mesa Financial said: “The key thing at the moment is to make sure there is a big enough contingency built in for increased material and labour costs. Although asset values have increased, the cost of material has also increased around 40 per cent in some reports we are receiving.
“Make sure you have enough cash or funding in place to cover this type of disruption. It’s quite hard to sell a half built asset at a profit that’s for sure. Get advice from the correct advisers from the outset and make sure you work with the correct lenders that won’t leave you in the lurch if costs do start to creep up.
David Hollingworth, associate director at L&C Mortgages, added: “The demand for property has been sky high and prices have been driven higher as a result. That will do little to dampen the enthusiasm of those looking for a bargain property that can be improved and sold at a profit. That in turn could only underline the need for flexible finance options on property that may otherwise struggle to qualify for mainstream mortgage finance.
“Of course it’s not something to enter into lightly and those new to renovation of any kind will need to plan carefully so that they have a tight handle on the costs that they will incur, the gains they can expect and the time to turn it round to make a success of it.”
However, some warned that flipping could have a negative impact on property prices, potentially causing an inflation and pushing out those with less cash or borrowing power.
Siobhan McAleer at The Mortgage Shop said: “Flipping is always going to feature in a buoyant market and the stamp duty advantage was a booster rocket. It’s never a positive – the foreseen consequence is that it inflates the market and as most ‘flippers’ are cash-rich they push out those in need of high loan to value (LTV) mortgages.
“The unforeseen consequence is that properties usually lie empty while being flipped impacting on housing stock.”
The Cornish market town of Redruth – specifically the TR16 6ER postcode – has seen the largest increase in house prices across the UK over the past year. Homes there have gone up in value by 21.12 per cent, taking the average price to £305,734, said Money.co.uk.
The price comparison site said this is still slightly lower than the UK average house price of £315,059.
Newquay takes second place as house prices in the TR7 1NG postcode rose 16.43 per cent in value in the last year. The average house price there has increased to £445,451 – 41.39 per cent above the UK average.
Much of the top 10 was dominated by Preston, which saw house prices soar in the last year.
Highest risers
1. TR16 6ER, Redruth, 21.12 per cent
2. TR7 1NG, Newquay, 16.43 per cent
3. BL1 6HT, Bolton, 13.60 per cent
4. PR1 2ED, Preston, 13.46 per cent
5. PR1 5SY, Preston, 13.46 per cent
6. PR1 2ES, Preston, 13.46 per cent
7. PR1 3ST, Preston, 13.46 per cent
8. EX2 5EX, Exeter, 13.27 per cent
9. DE5 3RT, Ripley, 13.15 per cent
10. PR3 3NS, Preston, 13.07 per cent
Bargain property postcodes
The comparison site also looked at the cheapest UK postcodes and found that homes in Peterlee, County Durham, are the cheapest in the UK, with the average home selling for only £41,462 – 86.84 per cent less than the UK average.
Houses in KA1 5ER, Kilmarnock, Scotland also could see you make some huge savings, with homes costing a £51,044 on average, while St Helens, between Liverpool and Manchester came third. The WA9 1NG postcode costs an average of £63,842, making it 79.74 per cent cheaper than the average UK property while offering great transport links to bigger, metropolitan neighbouring cities.
Cheapest property postcodes
1. AL1 5HA, Peterlee, £41,462
2. KA1 5ER, Kilmarnock, £51,044
3. WA9 1NG, St. Helens, £63,842
4. HU6 9ED, Hull, £66,244
5. HU8 8UB, Hull, £69,687
6. L4 5TS, Liverpool, £70,111
7. SA5 5ED, Swansea, £76,572
8. L35 5EN, Prescot, £78,025
9. L4 1RS, Liverpool, £78,747
10. CH41 5ES, Birkenhead, £81,527
Commenting on the ONS house price index, Harris said: “In contrast to early on in the pandemic when lenders pulled up the drawbridges, there is an eagerness to lend, with average mortgage rates on two- and five-year fixes falling to all-time lows.”
He added, with twice as many mortgages available now compared with a year ago, borrowers are in a strong position and the demand continues.
Nick Barnes, head of research at Chestertons, said where August is traditionally a quieter month, the London market registered a 54 per cent increase in sales against July.
“We expect activity to pick up as we move into the autumn as there is still substantial unsatisfied demand. Buyers are especially looking for larger properties with gardens and are still able to take advantage of very attractive mortgage offerings.”
The pace of house price rises dropped from 13.1 per cent to eight per cent from June to July, as the biggest stamp duty holiday discount ended. But the patchwork effect continues with the North East at 10.8 per cent seeing the UK’s strongest price inflation with London at 2.2 per cent showing the weakest.
On 3 March 2021, the stamp duty holiday was extended to June this year in England and Northern Ireland with the threshold falling to £250,000 until the 30 September.
From 1 October 2021, the stamp duty thresholds will revert to what they were before 8 July 2020. The tax holiday for Scotland ended on 31 March 2021 and in Wales on 30 June 2021.
The countries across Great Britain show differing levels of inflation in July, with Scotland leading the charge with growth of 14.6 per cent, Wales at 11.6 per cent, Northern Ireland at nine per cent and England with seven per cent.
A study from MIAC Property Analytics compared sold house prices in June 2020, the month before the introduction of the stamp duty holiday, to April this year.
Buyers in Westminster, London fared the worst during the stamp duty holiday as property prices rose by £136,889 to £1,759,530 from June last year to April this year.
While the break would have exempted them on paying a tax for the first £500,000 of the purchase price, they would have had to pay a levy of £109,894 this year compared to £108,467 last year.
On balance, Westminster buyers were £138,316 worse off when price changes were considered.
House prices in Waltham Forest would have fallen under the threshold last year as properties had an average price of £498,341. However, a £57,174 increase by April meant the maximum saving that could be made stood at £12,141 on an average property value of £555,515.
Factoring in price rises, transactions were in fact £45,033 more expensive for the Waltham Forest buyer.
Rutland in the East Midlands saw house prices surge to £447,235 over the analysed period, an increased of £49,263.
Although this remained below the new threshold, the £9,899 that would have been paid in stamp duty was outstripped by the change in property price, resulting in a £39,364 loss.
Buyers in Hammersmith and Fulham made the greatest saving, with a stamp duty reduction of £14,680 allowing buyers to save £8,272 despite the average price rising from £784,460 in June 2020 to £790,867 in April 2021.
MIAC Analytics’ managing director Darrel Welch, said: “The stamp duty holiday was an initiative designed to reboot a property market that had effectively stagnated as the pandemic and lockdown measures delayed completions and made house viewings virtually impossible.
“One of the unintended consequences of the stamp duty holiday has been a gold rush to complete before the respective deadlines, with the unprecedented demand pushing up prices in return.”
He added: “What this data shows is that a significant amount of the stamp duty saving made over the last year has simply been added onto the cost of the sale, in some cases adding tens of thousands of pounds on to a mortgage.
“This data provides a snapshot of the holiday’s impact in real time, but it will be at least six to 12 months down the line until we can understand the true impact. If house prices snap back to pre-pandemic trends, then thousands of people could be at risk of oversized mortgages and negative equity.”
According to Moneyfacts there are around 4,243 mortgage products on the market, which is the highest since the onset of the pandemic and the eighth month of growth.
Product counts increased across the measured categories, which included 95 per cent LTV, 90 per cent LTV and 60 per cent LTV, with 316 more products available compared to last month.
The largest increases were seen in the 95 per cent loan-to-value (LTV) category, with 192 products now available, an increase of 80 from May.
Average two- and five-year fixed rates across all LTVs increased slightly to 2.59 per cent and 2.82 per cent.
For 95 per cent LTVs, the average two-year fixed rate came to 3.88 per cent in June, an increase of 0.6 per cent compared to the same period last year and 0.63 per cent up from the same period in 2019.
Moneyfacts finance expert Eleanor Williams said that this is the lowest rate since last June when there were just 31 deals available.
According to the Bank of England statistics April, May and June are the first months since September last year that average two-year fixed rates have dropped below four per cent for 95 per cent LTVs.
Average five-year fixed rates for 95 per cent LTVs were 4.07 per cent, which is an increase of 1.05 per cent compared to the same period last year and a 0.59 per cent increase from 2019.
Moneyfacts said the average rates for a two-year fixed rates at 90 per cent LTV stood at 3.37 per cent, which is an increase of 1.07 per cent from June last year and an increase of 0.73 per cent from the same period in 2019.
Average rates for a five-year fixed rate at 90 per cent LTV are 3.62 per cent have increased by 1.05 per cent from June last year and 0.59 per cent from the same period in 2019.
Williams added: “The resurgence of high LTV products and the fact that their average rates are beginning to fall is particularly good news for first-time buyers, especially considering that Nationwide Building Society’s recent House Price Index Report found that house prices have risen nearly £24,000 over the past year, meaning that building that five per cent deposit is even harder now.”
Average rates for both two-year and five-year fixed rates for 60 per cent LTV were the only LTV band to see reductions year on year, with rates currently standing at 1.61 per cent and 1.81 per cent.
The rate for two-year fixed rate for 60 per cent LTV is the highest this year so far and is the first time that rates have broached 1.6 per cent since 2019 according to Bank of England figures.
Williams said: “As well as changes in the top LTV tiers, rate competition has become evident at the opposite extreme of the LTV spectrum, with a number of lenders launching eye-catching sub-one per cent mortgage deals in the lowest LTV brackets.
“These record-low rates are available to low-risk borrowers with high levels of equity, but as to whether this competition will extend to higher-LTV deals remains to be seen as we navigate the full economic impact of the last year.”
Primis mortgage network’s proposition director Vikki Jefferies said: “As lender appetite improves, particularly in the 95% LTV space, advisers will be crucial in supporting this segment of the market and highlighting the options available to borrowers. With more customers likely to approach a broker for support when securing a mortgage in the coming weeks, it will be vital that advisers also educate them about their protection options, either by providing this information themselves or by referring clients to a specialist.”
She added: “Many consumers have been financially impacted by the crisis, but guidance from a qualified broker can ensure they are protected against future financial hardship, should the worst happen.”
Its house price index for April suggested the value of homes sold this year would amount to £461bn, 46 per cent higher than last year and a 68 per cent increase on 2019.
Zoopla said £149bn of homes had been sold subject to contract in the first 15 weeks of the year. It also expected activity “to remain elevated in H2, albeit not as high as towards the end of last year”.
Meanwhile, house prices in the UK rose annually to £228,300, a 4.1 per cent increase. However, this was a dip on the 4.7 per cent yearly increase seen at the start of the year.
Zoopla said the changes in property prices were being underpinned by an ongoing imbalance in supply and demand levels, with the stock of homes down 20.8 per cent in the year to mid-May compared with the same period in 2020.
It also said areas with more affordable homes were seeing the most growth. This was evidenced by London, which continued to be surpassed by other regions.
The capital reported a 1.9 per cent annual rise in property prices, while other areas saw increases of at least three per cent.
Wales saw the strongest boost in prices, at 6.3 per cent growth. This was followed by Yorkshire and Humber, where homes were 5.4 per cent more expensive than last year and the North West which saw a 5.3 per cent rise.
Nick Barnes, head of research at Chestertons, said: “April’s property market was boosted by March’s £35.6bn in mortgage lending — a record-setting level of mortgage activity that will have a snowball effect over the next few months.
“As a result, we will continue to see strong demand from property buyers in an already competitive market. Looking ahead, we expect market activity to level out slightly at the beginning of Q3 as we see the stamp duty holiday’s threshold dropping to £250,000 from 1st July.”
The specialist buy to let lender reported 58 per cent of clients had opted for a mortgage from its larger loan range in the period since December 2020.
“These figures signal growing confidence in the market, as landlords continue to take out larger mortgages in expectation of an ongoing uptick in future property prices and of positive rental yields post-pandemic,” the lender said.
The range offers a suite of products for loans sizes of £250,000 to £1m, with rates starting at 3.09 per cent.
Some 62 per cent of applications for the larger loans came from limited company landlords, compared to individual landlords at 38 per cent.
“Landlords remain confident about the BTL market, with the majority looking to secure a larger loan. Undoubtedly, the Stamp Duty Land Tax initiative has played an important part in this and has presented landlords with an excellent opportunity to bolster their portfolios and invest in higher value properties,” said Elise Coole, managing director of Keystone Property Finance (pictured).
