Demand for five-year fixed rate remortgages has fallen to the lowest level since July 2017, according to conveyancing service provider LMS.
The proportion of borrowers opting for five-year fixes has fallen to a market low of 37% from 45% the previous month. This has been driven by more consumers opting for cheaper two-year fixed rate deals to balance out the cost of the base rate rise introduced in November 2017.
The proportion of borrowers choosing fixed two-year remortgages increased to 24% in February, up from 22% the month before – the highest level in seven months. The two-year fixed remortgages are available with an average fixed rate of 2.35% in February.
Nick Chadbourne, chief executive of LMS, said: “Few borrowers will want to risk a variable rate mortgage with potential increases to the base rate likely to be on the way later this year, but with incomes squeezed, demand for longer term fixed deals has slipped.”
Homeowners are now prepared to remortgage more often to get a better deal. In February 2017, 17% of borrowers were looking to remortgage again in eight years’ time, but a year later, just 10% of borrowers expect to wait this long.
Meanwhile, 39% of borrowers plan to refinance in five to six years’ time – this is an 11% increase from February last year.
The long-term shift towards frequent remortgaging can be seen in the surge in total remortgage lending, which reached a nine-year high in January, increasing 20.3% year-on-year.
“The record high volumes of remortgage seen at the end of 2017 illustrates the ongoing challenge of developing a smoother, more efficient process,” added Chadbourne.
What’s more, the proportion of homeowners receiving a lower property valuation for remortgaging purposes has risen to 17% of borrowers in February, up from 12% in January. According to LMS, the increase was pushed by slower house price growth, with average house prices increasing 0.5% month-on-month in February.
Chadbourne continued: “Overall market conditions are still re-balancing following the base rate rise and the uncertain political landscape. This must make accurate valuations more complex – valuers natural fall on the side of caution.”
“While this increase only represents a single percentage point uplift year-on-year, it has reached a new milestone. Should the trend continue it will impact overall deal conversion levels, however as the market adjusts it may well balance out.”