Homeowners capitalise on low interest rates to unlock equity

Nearly half of people remortgaging are unlocking equity from their home, withdrawing an average of £50,000 each.

A total of 36,880 homeowners switched mortgage in September, 17,740 of who took the opportunity to tap into their property’s equity, according to the latest figures from UK Finance.

The trend contributed to year-on-year increases in both the average loan size, which rose to £180,119, and the income multiple advanced, with this edging ahead to 2.8 times the typical borrower’s salary.

But despite average mortgage sizes increasing, intense competition among mortgage lenders meant repayments actually became more affordable year-on-year, with people remortgaging typically spending just 16.5% of their monthly take-home pay on mortgage payments.

One factor that could be driving the trend is that people are opting to improve their existing home rather than move.

They may be choosing to do this due to the current level of political and economic uncertainty or because the jump up to a larger home is too expensive for them to afford.

But homeowners could also be tapping into their equity to repay credit card and loan debt.

Separate figures from UK Finance show that unsecured borrowing has been on a steady upward trajectory, with Britons increasing their credit card debt by nearly £11 billion during September alone.

Whether homeowners are using the equity they unlock to improve their home, repay debt or for some other purpose, a mortgage is usually the most cost-effective way of borrowing money.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Rates for five-year deals start from less than 1.5%. Lenders are keen to lend, particularly as they look towards their year-end, and hardly a day goes by without another cutting its rates to attract business.”

But with mortgage rates remaining close to record lows, it is important that people think about whether they will continue to be able to afford their monthly repayments if interest rates rise.

While borrowing money against your property may be cheaper than other forms of debt, you run the risk of losing your home if you fall behind with payments.

The data from UK Finance also showed that first-time buyers continue to account for around half of all properties bought with a mortgage.

A total of 29,100 mortgages were advanced to people buying their first home in September, while 29,050 were for existing homeowners who were moving.

There was a further fall in buy-to-let lending, with the number of mortgages taken out by landlords purchasing a property falling 5.9% year-onyear to 5,500.