Borrowers withdraw record equity despite rate hike threat

Remortgage customers are withdrawing record amounts of equity despite the threat that rising base rates will force up mortgage costs.

Borrowers have swept aside fears that the prospect of a base rate hike will put an end to record low mortgages, to take on ever larger sums.

The average remortgage customer borrowed an extra £34,505 in June, the highest amount ever recorded.

That is an increase of 28% on May and 81% on June last year, when just £19,036 was withdrawn on average.

LMS, which compiled the research, said this was due to record low remortgage rates and much improved affordability.

The total equity withdrawn by remortgaging hit seven-year high of £852 million in June.

That is the largest amount of total equity withdrawn since July 2008, up 40% month-on-month and 86% year-on-year.

With an interest rate rise on the horizon and current interest rates at a new record low of 2.59%, borrowers are being urged to remortgage now to grab the best rates.

But affordability is improving, with annual remortgage repayments now accounting for just 17.6% of household income, a record low.

LMS also estimates that the actual number of remortgage loans increased by 9% from 22,700 in May to 24,693 in June, up 2% year-on-year.

Andy Knee, chief executive of LMS said: “Record low rates of remortgaging and better affordability have spurred people on to remortgage now for extra cash to spend or pay off other debts.

“There is a general sentiment of positivity throughout the summer, as families are able to remortgage for record amounts of extra income, but economic improvements are struggling to filter through to many families who still feel the pinch.

“It is, perhaps, a little hawkish for the central bank to raise the historically low interest rates, following Mark Carney’s words last week that rates may rise by January. A rise in interest rates, however small, would see outgoings increase, affordability tighten and place added pressure on struggling households.”

Knee said borrowers need to prepare for the Bank of England rate raise. “Now is the opportune time to take advantage of lender appetite and a low base rate, seek out the best remortgage deals on offer, and fix low rates before any change kicks in.”