Latest analysis from Lloyds TSB reports that borrowers may no longer be better off staying on standard variable rates (SVRs).
At the end of 2012, remortgaging activity in the UK was just a quarter (24%) of the levels at the start of 2008 – 28,200 remortgages in December 2012 compared with 116,600 in January 2008. This fall of 76% was almost twice the 40% decline in house purchase mortgages over the same period.
Since late 2008, falling SVRs lessened the gap with fixed rate mortgages and significantly reduced the incentive for many borrowers to remortgage. However, given the recent fall in fixed rates, some homeowners may find a better rate by remortgaging.
Whilst the total number of remortgages in 2012 was 12% lower than in 2011, there were some signs of improvement in the latter part of the year with a 7% increase in remortgaging activity between the third and fourth quarter.
LLoyds found that historically, remortgage activity has typically been driven by borrowers replacing their fixed home loans at the end of their term to avoid moving on to an SVR. This is because SVRs, on the whole, were more expensive and brought uncertainty over future monthly payments. However, this changed in recent years as interest rates fell to an all time low.
Even though SVR rates have generally been higher than fixed rates since August 2011, remortgaging activity on the whole has remained subdued, averaging 29,700 per month (37% of total mortgage lending). Over this period, the average SVR rate was 24bps more than average fixed rates (Fixed rates 3.96%; SVR 4.20%).
With fixed rates falling since August 2012, the incentive to remortgage should have increased. For example, if a homeowner took out a 2-year fixed rate in December 2012, their monthly payment would be £519; in the same month the payment on an SVR mortgage would have been £548.
Lloyds TSB is reinvigorating the remortgage market by reducing the rates on a number of its remortgage deals by up to 0.25%. As well as taking advantage of the free switching service which removes the hassle and expense of remortgaging, Lloyds TSB current account customers can also benefit from £500 cashback.
The offer includes:
£500 cashback for Lloyds TSB current account customers
Remortgage rates reduced by up to 0.25% offering lower rates than many SVRs
Free switching service available with a dedicated team of mortgage and protection advisers to guide customers through the process
No mortgage account, product, valuation or conveyancing fees – potential cost savings could total up to £2,000
For example, a customer on a typical SVR of 4.38% based on a £100,000 loan would have a monthly mortgage payment of £549. If the borrower switched to a remortgage rate of 3.34% with Lloyds TSB, their payments would drop by £57 to £492 per month. Over the term of the mortgage, they would save at least £3,418 on a fixed rate compared with the SVR.
“The Lloyds TSB switching service guarantees to take the hassle out of remortgaging. With our new rates and £500 cash back for Lloyds TSB current account holders, now is the time for homeowners to consider the benefits of remortgaging.”