Offsetting could slow the rate-chasing trend

Jan Errington, group mortgage marketing manager, Abbey for Intermediaries The impact of low interest rates cannot be overlooked when considering the remortgage market. Short-term fixed rates and discounted deals have proved popular as people switch lenders to take advantage of the best deals available.

However, the Miles report has called for more attractive long-term offers. The trend towards regular remortgaging has slowed a little in the early months of this year and better long-term deals could slow it further, providing more stability for the consumer and the market.

The upbeat housing market has boosted the value of Britain&#39s homes significantly in recent years. Rather than leave the equity in their property, more and more people want to reap the benefits of the house price boom. By remortgaging, clients can use some of the money tied up in their houses for home improvements or even invest in another property.

As first-time buyers struggle to get a start in the market, remortgaging can be a useful tool. Parents who own homes and have equity available can remortgage and use the funds to provide a larger deposit for their children. Clients can also pay off other financial commitments in this way, taking advantage of the lower interest rates offered by their mortgage lender and spreading the payments over a longer term. As well as the cost savings, this type of remortgaging means they have only one monthly payment to one party which could make repayments easier to manage.

Intermediaries are asked to source the best deals for clients according to their needs and circumstances. However, modern lifestyles are fast-paced and circumstances can change quickly. As a result, clients are shopping around more regularly to meet their changing circumstances. Flexibility is the key here and the growing popularity of offset products will shape the future remortgage market. Offsetting allows customers to save money where they need it by offsetting savings, taking payment holidays and underpayments, and making additional funds available for loan if required.

This type of mortgage accounts for around 15% of the market with that figure predicted to hit 21% by 2006, says the CML. If offsetting continues to grow as predicted it could reduce the cycle of remortgaging seen in recent years, helping to stabilise the market as customers take a longer term perspective on the way they manage their money.