Whats the mortgage rush?
The Bank of England (BoE) has reported that 311,000 mortgages were taken out during the month of February. That is 4,000 more than were taken out in January. But the number of loans for home purchase...
The Bank of England (BoE) has reported that 311,000 mortgages were taken out during the month of February. That is 4,000 more than were taken out in January.
But the number of loans for home purchases remained stable at 119,000, supporting predictions that the property market may be beginning to slow down.
Mortgage lending increased by £10.3 billion in February. That is £800 million more than the previous month and much higher than the six month average of £9.7 million.
The jump in the number of remortgages followed the BoE's sudden 0.25 per cent interest rate hike in February. It was the bank's third hike in nine months, which took the base rate to 5.25 per cent.
Experts have warned that interest rates may rise again in the near future as the BoE attempts to restrict inflation.
The figures are still strong and it will take time for higher interest rates to have an effect. Falls in mortgage approvals over the next few months can not be ruled out, but for now the housing market still looks relatively healthy.
However, first homebuyers and home owners should remain cautious as lenders are almost doubling mortgage exit costs.
Mortgage exit fees have risen by more than 100 per cent over the past year as lenders try to put a stop to homeowners switching products.
In the UK the mortgage and remortgage market is huge and offers more options and products than any other country in the world. The market increasingly encourages homeowners to look for a better a deal and switch mortgages, but new research has revealed exit fees have increased by 117 per cent, with some lenders increasing their fees by nearly 300 per cent.
Lenders are concerned that borrowers are taking advantage of discounted offers and switching products when those deals come to an end.
In percentage terms, the smaller lenders have introduced the biggest increases. The fees are supposed to reflect the administrative cost of closing a mortgage/remortgage, but more and more lenders are using the fee to lock customers in.
Lenders are trying harder to retain customers and beat the constant competition. If you come to the end of a deal, a £300 fee might make you think again about switching and you may look at some of the deals your lender already provides.
However, some lenders will offer to pay these ‘leaving’ fees in order to obtain your business.
People who constantly switch have made it increasingly difficult for lenders to make a profit on mortgages, particularly on two-year deals.
But, many brokers are encouraging homeowners to constantly look around for a better deal, especially if they are looking to not only save money but also make it.
Lenders say they need a borrower to stay with them for seven years before they make a profit on the loan. Therefore, if borrowers leave after two years they will obviously struggle to pay the exit fees and redemption costs.
The mortgage/remortgage market is currently so competitive that lenders are having to offer very attractive deals to entice customers in the first place. If you are thinking of switching, talk to your current lender first and find out if they can offer you a better deal before paying exit fees and of course, administration fees to your next lender.
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