Serving more savvy and price-sensitive clients

Gary Lacey, group product manager, Norwich and Peterborough For well over a year the remortgage market has been extremely strong. Despite the recent drop in remortgaging the outlook for the market remains good as the likelihood of higher interest rates prompts borrowers to look for better deals.

It is envisaged that Bank base rate could increase to between 4.50% and 5.0% by the end of the year and, if mortgagors on variable rate products experience increased monthly payments it will encourage many of them to review their existing deals. Mortgage customers are becoming increasingly savvy and price-sensitive. This should ensure that remortgage activity remains healthy for the foreseeable future.

The surge in remortgage activity over the past few years has been driven by historically low interest rates. As interest rates fell significantly during 2001 many borrowers took advantage and remortgaged to the competitively priced deals that became available.

Another driver in the recent past has been mortgage equity withdrawal. Following substantial house price inflation and the fact that many homeowners now have high levels of equity in their properties, mortgage equity withdrawal has become a desirable way of generating funds for such things as home improvements, holidays and cars. Interest rates on secured loans are generally lower than rates on unsecured loans so rather than take out a personal loan many homeowners have remortgaged and released some of the equity in their homes via a mortgage.

Other motives for remortgaging during a rising interest environment would include the certainty of a fixed rate mortgage. Risk-averse borrowers or those who have stretched themselves could be keen to remortgage from a variable rate to a fixed rate to avoid the spectre of rates rising to a level whereby their repayments are unaffordable. However, this is not necessarily borne out by the statistics which suggest that variable rates are still the most popular for those remortgaging.

The most popular products in this sector are currently variable rate products, typically short-term discounted rates and base rate trackers. This is largely down to price since the best variable rates are around 0.5% lower than the best fixed rates. The reason for this is that lenders set their fixed rate mortgage products using money market swap rates which have anticipated rate increases. Hence fixed rates appear relatively expensive at present.