The desire of homeowners to make the most of rising property prices has led to remortgage loans hitting a new high, according to Mortgage Advice Bureau’s (MAB’s) latest National Mortgage Index.
For July 2015, the average remortgage loan was £170,094 – a 2% rise on June (£166,100) and the highest recorded figure since the organisation began the index six years ago. At the same time, the value of a property put up for remortgage reached £300,898: the highest value seen in nine months (October 2014 – £305,592).
The data indicates rather than take out smaller loans – and decrease monthly mortgage repayments – borrowers are opting to cash in on property gains. The average remortgage loan-to-value rose 1.1 percentage points from 55.4% in June to 56.5% in July. Compared to the average LTV six months ago (54.9%), this is a 1.6 percentage point increase.
As a result of taking out higher loans, borrowers’ average housing equity has fallen 2% over the past six months, from £133,718 in January to £130,804 in July. This is also a significant annual fall from July 2014, when the typical remortgage equity was £11,180 or 9% higher (£141,984).
The MAB revealed that those remortgaging their property were becoming more likely to opt for fixed-rate agreements; borrowers fixed 89.7% of deals in July, compared to 87.1% of remortgagers in June – the highest since over a year ago
“Homeowners have benefited from significant house price rises in recent years,” said Brian Murphy, head of lending at Mortgage Advice Bureau. “For example, someone who bought their house five years ago may have seen the value of their home soar by almost a third, according to the Office for National Statistics. As a result, many homeowners are in an ideal position to use their property to release extra funds.”
Nonetheless, he had a warning for those who found themselves considering their home as a means of securing finance, adding: “[O]pting for a higher LTV (loan-to-value) means borrowers may have higher monthly mortgage repayments to contend with – and could end up paying more over the full duration of the loan. Borrowers coming to the end of their current mortgage deal will need to decide whether to prioritise reducing their overall mortgage debt or releasing cash for the here-and-now.”