Regulation  

How a broken mortgage market gets back on its feet

How a broken mortgage market gets back on its feet

The latest data from UK Finance has revealed that the remortgage market enjoyed a healthy boost in 2017, with rates up 15 per cent year-on-year. This was in part due to the promise of the Bank of England’s rate rise decision, taken in November but heavily mooted from September - spurring homeowners into taking action on their mortgages.

And not a moment too soon. HSBC estimates that one in three homeowners could save up to £4,000 every year by remortgaging from a standard variable rate mortgage (SVR) to a fixed two, three or five year product. Indeed, the Citizens Advice Bureau reported that homeowners are being financially penalised when they are shifted from their cheap introductory rate to an expensive SVR in a form of ‘loyalty trap.’ 

Yet astonishingly, one in four homeowners remain in the dark about the sizeable benefits of switching their mortgage provider or product, and cumulatively this costs the nation an estimated £29bn every year, HSBC said.

But why is this the case when the financial upside of remortgaging can be so big? 

Recent research by YouGov found that around half (47 per cent) of adults are wrongly associating remortgaging with taking on even more debt, needing to do home renovations (7 per cent) or failing to meet existing repayments (5 per cent). The data also revealed that one in five mortgage holders do not think they can save money by changing lender, while 9 per of respondents said they had not changed because the process is too complicated and stressful. Some 5 per cent felt it is too time-consuming. As a result, almost two in five (39 per cent) people with a mortgage have not changed their product in the last five years, with 13 per cent of these never doing so.

Further to this, when the questions were put to parents on Mumsnet about access to financial services, 75 per cent said that trying to arrange meetings or calls to organise personal finances was incredibly difficult, especially if they had children. More than half (53 per cent) had spent hours on hold trying to manage their finances by phone, and a similar proportion (49 per cent) needed to take a child with them to a meeting about their finances, as they had no other option.

The YouGov findings show a shocking lack of awareness by the general public when it comes to the benefits of remortgaging. The fear, and inconvenience - as demonstrated by the Mums-net findings, associated with remortgaging as a painful process is driving people’s’ behaviour to not switch mortgage providers or products.  

Key Points

  • One in four homeowners remain in the dark about the sizeable benefits of switching their mortgage provider or product.
  • The rise in interest rates means homeowners are now paying more in mortgages.
  • Online mortgage brokers allow people to remortgage more quickly.

The Bank of England’s rate raise now means that borrowers on a tracker, or variable, rate mortgages have seen their monthly mortgage repayments go up by roughly £20 a month. This does not sound like too much. But adding £240 per year to the already existing average overpayment of £4,000, and we are talking about a substantial household cost. Not only was this the first rise in borrowing costs since 2008, but the Bank of England have assured us that it will not be the last. 

Remortgaging 

On top of the benefits of saving money, remortgaging will be even more important in a market with fewer home movers. Political uncertainty over the impact of Brexit and a high house-price-to-income ratio prevents homeowners from moving up the ladder. In fact, more and more homeowners are choosing to stay put and improve rather than move.