Homeowners worried about interest rates going up are moving away from short-term deals and variable rates and onto five-year fixes to guarantee certainty and financial security.
According to conveyancing service provider LMS, the percentage of homeowners remortgaging to lower their monthly repayments fell from 21% in June to 15% in July.
Meanwhile, only 15% of homeowners remortgaged to increase the size of their overall loan in July – a fall from 19% in June.
LMS said that instead of remortgaging to lower monthly repayments, homeowners appear to be nervous about interest rates heading north and are remortgaging onto long-term deals at attractively low rates for certainty and financial security.
Just 2% of remortgagers predict interest rates to fall in the next year, with the remaining 98% expecting rates to either stay the same or rise.
Over a third (37%) fixed onto a five-year deal in July – the greatest since numbers were first tracked – and a massive increase from 7% who previously had a fixed five-year product.
The average mortgage rate in July was 2.07% – significantly lower than the average rate of 2.41% in July 2016.
Andy Knee, chief executive of LMS, said: “We are seeing a significant change in consumer behaviour when remortgaging. Typically, over the last year, people were remortgaging to save on their monthly repayments or borrow additional funds. Instead, with rates low and expectations of a rate rise high, people are fixing for longer for added financial security.
“Borrowers are taking shelter from future rate rises and preparing for potentially turbulent times to come. The way people borrow is changing, there is a significant decline in interest-only and variable rate deals, and fixing for longer appears to be the top priority. It’s a flight to financial security.”
The number of people remortgaging their home in July increased by 12% from 34,300 in June to 38,348. In addition, the value of remortgage transactions increased by 3% between June and July – from £6.0 billion to £6.2 billion.
The increase in remortgaging activity was driven by improved affordability in the previous month. The average annual repayment fell from £8,197 in May to £8,080 in June.
Meanwhile, the percentage of total income that the average annual mortgage repayment accounted for dropped to its lowest level this year, from 17.5% in May to 17.1% in June.
Knee said: “Remortgagers benefitted from a bumper month in July as affordability improved to a year-long high. This propelled overall activity. With interest rates still low and lenders competing with one another to offer customers the best possible deal – there has never been a better time to remortgage in 2017.”
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