Borrowers are split on whether to opt for two or five year terms on remortgages as uncertainty over Bank of England interest rate cuts continues.
45% of remortgages were done on a two year term, and 46% of remortgages were taken out on a five year term. Three years (4%), ten years (1%),Tracker (1%) and Other (3%) make up the remaining output of the latest LMS Monthly remortgage snapshot. Following the Bank of England interest rate cut at the start of February, 28% of those remortgaging reported doing so to lower monthly payments, with 22% releasing equity and/or borrowing more.
Nearly half of borrowers expect interest rate increases on mortgage products this year (46%), one in five said they expected increases to be ‘more than a year away’ and 34% had no expectations of increases.
“In terms of behaviours, we are still seeing increases in monthly payments, partly due to borrowers increasing their loan sizes but also due to continued rate shock from historically low rates. We are back to equilibrium on product purchasing, with 45% opting for 2 years and 46% going for 5 years. Borrowers are clearly unconvinced about rate reductions despite the rest of the market factoring this in!”
said Nick Chadbourne, CEO of LMS.
The report also delves into motivations for fixed terms with nearly three quarters of borrowers (72%) wanting certainty of payments each month. 15% added they were worried about the economic climate and wanted to lock in a fixed rate.
The latest monthly report also reveals that although Q1 has the lowest number of mortgage expiries, the 12% increase in instructions in February ‘bodes well for the rest of 2025.’
“We have two significant spikes ahead: at the end of Q2 and towards the end of the year, so expect to see pipelines grow from now until June!”
added Chadbourne.
The report comes in the week the Bank of England revealed the number of mortgage approvals for purchases are up 18% over the last year, with demand back in line with pre-pandemic levels and supporting increased numbers of new sales being agreed.
“The average mortgage rate for new loans was higher at 4.5%, showing how the housing market has adjusted well to higher mortgage rates over the last two years, with incomes growth working hard to support affordability. The latest signs are that demand continues to grow and we expect 5% more home sales than last year with house prices rising 2.5% over 2025″
said Richard Donnell, Executive Director at Zoopla.
The Financial Conduct Authority have also said lenders could relax stress testing rules in an effort to improve access to mortgages, with Chief Executive Nikhil Rathi encouraging mortgage providers to use the flexibility in FCA rules to remove ‘(restrictions) to otherwise affordable mortgages’ as interest rates increase from their historic low.
