The Intermediary – February 2025 - Flipbook - Page 11
RESIDENTIAL
Opinion
Remortgaging will
matter this year
T
he debate about product
transfers (PTs) versus
remortgage has ebbed
and flowed for many
years, but over the past
few, favour has fallen
squarely in the PT camp.
Data published by UK Finance
showed that in Q2 2023 some 84%
of those remortgaging stayed with
their current lender rather than
remortgaging to another provider. It
was a significant upli on the previous
year, when the average for 2022 as a
whole was 77%.
Consensus suggests that product
transfers still accounted for around
80% of refinancing last year, but
there’s potential for that to start to
shi this year.
According to UK Finance data, the
value of internal PT lending in 2024
was £224bn, down 7% compared
to 2023. External remortgaging,
by comparison, fell 10% to £59bn
in the year. The trade body sees
that balance potentially shiing in
2025, forecasting continued steady
growth in both house purchase and
remortgage lending as affordability
improves further.
UK Finance forecasts remortgage
activity to rebound by 13% this year to
£88bn, reflecting the higher number
of customers reaching the end of their
fixed-rate period. The Intermediary
Mortgage Lenders Association
(IMLA) said it expects the fall in the
number of PTs to be greater than
that of remortgages in 2024, with
remortgaging enjoying a larger rise in
2025. We agree – interest rates were
rising steadily in 2022 and reached
their recent peak at 5.25% in July
2023, remaining there for the next
12 months.
Those with 5-year fixed rates
ending this year may still err towards
transferring to a new deal with their
existing lender, bypassing a full
re-underwrite of their affordability.
For them, there is still going to be a
prey hey upli in their monthly
repayments as they are faced with
mortgage rates between 4% and 5%,
up from as low as a rate that may have
started back in 2020 with a ‘1’.
The repercussions
This may mean that exploring the
initial term – and therefore their
protection – will need scrutiny.
Most product transfers do not offer
a variation in term, and yet a longer
term could mean that affordability
issues are addressed.
Borrowers may need, then, to
realign their protection requirements.
Borrowers may even feel under
pressure to cancel protection, which
cannot be in their interests. This is
why advice is crucial.
For borrowers coming off 2-year
fixed rates, the situation will be quite
different, with many finding they
qualify for a lower mortgage rate
when they come to the end of their
deal this year.
Many who are coming off product
transfers this year will have bypassed
a full affordability assessment when
they last refinanced. They may also
find their affordability has improved
on other fronts, too, with annual
wage inflation between September
and November last year up 5.6%,
according to the Office for National
Statistics (ONS). For this cohort, too,
remortgaging will offer opportunity.
By examining existing
arrangements, brokers may save
borrowers significant sums and,
for example, shorten terms and
protection requirements.
These opportunities are present
because the economic environment is
slowly improving. Inflation is easing
and energy prices are also puing less
strain on most households’ finances
than they were two years ago. That
means disposable income is likely to
be less tight for many.
Mortgage rates could also come
down even further over the next 12
CRAIG HALL
is director, strategic
partnerships, financial services
at LSL Property Services
A significant
proportion of borrowers
are coming to the end of
their deals this year”
months, though there’s quite a divide
when it comes to how many times the
Bank of England could cut the base
rate this year. Markets are pricing in
two cuts, potentially taking it down
from to 4.25%.
However, a Reuters poll of
economists carried out in mid-January
suggested four cuts by the end of 2025
– that would take it down below 4%,
though that forecast was subject to a
hey caveat that if inflation starts to
rise again there will be fewer.
Whatever happens, a significant
proportion of borrowers coming to the
end of their deals this year will have
seen their affordability improve, and
be presented with a greater likelihood
they could save by switching lender.
As is usual, there are likely to be
peaks and troughs of activity over the
year, with June, September, October
and December seeing big spikes in
the number of terms maturing.
That will drive competition between
lenders, and we’d expect to see some
compelling rate cuts in the run
up to those periods as lenders vie
for volume.
Purchase activity is set to abate post
March’s end to Stamp Duty relief.
The two cohorts facing refinancing
this year will need advice. A full
review could not only be worthwhile,
but essential if borrowers are to receive
the right product.
This may well turn out to be the year
of the remortgage. ●
February 2025 | The Intermediary
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