Cheap rates lead to surge in remortgaging

The remortgaging market has grown by 255% since 2000 as British homeowners cash in on cheaper mortgages, research showed today.

According to analyst Datamonitor, almost four in 10 mortgage holders chose to remortgage in 2003, and more than a quarter of them had done so more than once in the last five years.

Although the Bank of England base rate has risen in recent months, mortgages remain competitive. The figures suggest that homeowners are taking advantage of lower rates to save money as well as borrowing larger amounts through remortgaging: just over a third (35%) of borrowers had withdrawn equity from their properties.

Home improvements and extensions remained the most popular reason for withdrawing equity, but an increasing number are choosing to remortgage to consolidate existing debts.

The average value of a remortgaging loan had gone up from ?61,000 in 2000 to ?73,000 in 2002, and in 2003 the average loan had increased by a further 10% to ?80,232.

Datamonitor said that consumers were the "winners" in the remortgaging surge, as lenders are forced to offer competitive rates to retain customers.

"The existence of thousands of mortgage products and the increasing competitiveness of these products mean customers are the winners," said Karina Purang, financial analyst at Datamonitor.

However, the analyst said that people looking to remortgage should beware of fees when changing mortgages. Many lenders make customers pay a penalty for redeeming a loan during the fixed rate or discounted period of a deal, but some also impose extended redemption penalties, making borrowers pay a fee if they move mortgages even after the introductory period has ended.

Liberal Democrat trade and industry spokesman Malcolm Bruce urged lenders to "act responsibly" in light of the remortgaging boom. "If interest rates rise further, borrowing against house valuations that may not be sustainable will result in catastrophe for thousands.

"Making the most of low interest rates is one thing. But borrowing to the edge of your means, seeing interest rates rise and losing your home is hardly making the most of your assets," he said.