After a year of stagnation in the remortgage market prompted by a record low bank rate, brokers are finally beginning to see a refinancing opportunity for their clients.
Last week, comparison website Moneysuper – market released figures showing that 85 per cent of standard variable rates are more expensive than the cheapest two-year fixed-rate deals, even including arrangement fees.
With bank rate unable to go anywhere but up, brokers are advising borrowers with an SVR mortgage to consider switching to a fixed deal.
Chadney Bulgin director of mortgages Jonathan Clarke says the remortgage market is beginning to re-emerge, although in a different form from two years ago.
He says: “The remort – gaging market has been all but closed for a year or 18 months and it is just start – ing to open. But the remortgage model is not what it used to be, where people would automat – ically look to remortgage every two years or so, but opportunities are emerging.”
But Mortgage Centre IFA group director Fahim Antoniades argues that lenders’ equity requirements are still putting the brakes on the market.
He says: “Now that SVRs are going up it is looking better for remortgage business but what is hampering the revival of the remortgage market is loan-to-value ratios. Lenders are still expecting at least 25 per cent equity in the property in order to qualify for some of the better deals.
“It is not going to be an option for everybody and over the last few years people’s equity has been eroded. Remortgage opportunities are better
than before but the deals out there are still far from being useful to everybody because of the demand for equity.”
Figures from Moneyfacts emphasise the disad – vantages faced by borrowers requiring higher loans to value.
The average two-year fixed rate for a borrower with a 10 per cent deposit has increased steadily since April 2009,to its highest level since December 2008, at 6.48 per cent. By comparison, the average rate for a borrower with a 25 per cent deposit stands at 4.27 per cent, the lowest
figure since July 2009.
Antoniades says the mortgage market has become more conservative since the credit crunch and now more resembles the Continental markets.
He adds that it may take a generation to get back to where it once was. He says: “We used to laugh about how conservative the Europeans are
in the way they lend. If you look at how we are lending now, it is not far off the European model, which may be a more sustainable model to go with.
“Eventually, it will be less aggressive and maybe a bit more flexible than the European market. For a generation, at least, we are not going to see the kind of aggression we once saw.”
’How we are lending now is not far off the European model we used to laugh at’
Due to the forthcoming general election and uncertainty about when the bank rate will rise. Burwood Financial Consultants managing director Peter Suttill predicts the remortgage market will grow this year as people look to refinance.
He says: “People are starting to look around. Some are going to face the ordeal of coming off these trackers and discount rates and having to go to a higher fixed rate just to give themselves some certainty about the future.
“That problem will be compounded at the other side of the election. There are a number of factors suggesting the remortgage market is going to be more active than has previously been the case.
“If you are on an SVR and you have a reasonable amount of equity in the property, it is certainly worth considering moving over to a fixed rate. I think, however, it is too soon to start thinking about trackers.”
Clarke advises his clients that some lenders will hold offers open, leaving plenty of time to decidewhat is best.
He says: “Some people are applying to lenders like the Woolwich, who hold an offer open for six months. Certain lenders have started to charge fees if you drop out of an application but some people want to secure deals in advance before an announcement on the general election.”
Stroud & Swindon marketing director Linda Will is working on the launch of a hybrid option for those unable to choose between an SVR or fixedrate mortgage. The droplock product will allow borrowers to switch to a fixed rate at any time without a penalty charge.
She says: “A lot of people are hesitant to lock into something at the moment. One reason why people are sitting on a standard variable rate is because until recently a lot of SVRs were low anyway. “Hybrid products give people the best of both worlds to a certain extent.”