The knock-on effect of rate rise speculation: Barclays quarterly review

The remortgage market continues to shine and frustrate, almost in the same breath. Like many markets it inevitably has its up and downs. In fairness these swings have been relatively low in velocity and can't help but be influenced by a number of economic factors in the UK and beyond.

Related topics:  Special Features
Jackie Uhi | Mortgage Distribution at Barclays
30th October 2015
Jackie Uhi Barclays

It’s no surprise to see that potential Bank of England base rate movement continues to be high on this list of influencers. Speculation in this area has been evident for longer than we can remember and there is little doubt that any heightened speculation, never mind imminent action, can have a substantial knock-on effect within the remortgage market.

Looking back on Q3 2015 - after all this is Q3 remortgage review - there was fervent speculation for a potential hike during this period throughout early to mid 2014. This was subsequently tempered over the course of the year with forecasts changing first to Q1 2016, then to the summer months of 2016 and now there is some indication of this now being shifted back to Q1 2017. It’s evident that such uncertainty has not helped the remortgage market generate any firm footings to really live up to its vast potential in recent times. Having said all this, the final month of Q2 2015 certainly gave rise to some highly encouraging signs. Figures from the Council of Mortgage Lenders for June reported that remortgage activity showed a sudden sharp rise in activity, increasing by 31 per cent over the month to £5.1bn. It rose both by volume and by value by over a third when compared to the previous monthly figures and also year-on-year. The value of home-owner loans for house purchase in June was said to have accounted for 54 per cent of gross lending, while remortgage activity accounted for 25 per cent. Overall, Q2 remortgage activity also saw increases compared to the first quarter and the same period last year, although the rise was not as sharp.

Commenting on the June data, Paul Smee, director general of the CML, said: “Notable this month is the uptick in remortgage activity among home-owners, perhaps reflecting an increased desire to lock into competitively-priced mortgage deals in advance of any rise in rates. It is likely that people are now beginning to feel a rate rise is a realistic prospect, and not just a distant theoretical possibility.”

Now I don’t want to dwell too much on interest rates but back in early July I remember seeing, and writing about, UK interest rate speculation being in the headlines on the back of recent comments from the governor of the Bank of England Mark Carney who hinted at an interest rate rise around the turn of the year. However, as outlined, things change and this speculation was not necessarily reflected in the following CML lending figures for July which, after June’s sudden rise, saw remortgage activity settle down slightly 6 per cent by volume and 4 per cent by value. On a plus note though, this still represented a substantial increase of 26 per cent by volume and 34 per cent by value on July 2014 figures.

In contrast, according to data from LMS, the value of monthly gross remortgage lending was suggested to have increased by 41 per cent in July, rising to £7.2bn and representing an 89 per cent year-on-year hike. This was said to signify the largest amount since October 2008 and was to be considered a massive boost to the industry following a slow start to the year for remortgaging. In terms of average remortgage loan size this was also reported to have reached a new high. In addition, July’s National Mortgage Index from Mortgage Advice Bureau outlined that the typical remortgage loan in July was £170,094: a 2 per cent increase from June (£166,100) and the highest figure recorded since MAB began tracking this data in 2009. At the same time, the value of a property put up for remortgage reached £300,898: the highest value seen in nine months (October 2014 - £305,592).

Moving swiftly into figures relating to the August market, this momentum appeared to continue. Bank of England statistics revealed that mortgage lenders enjoyed a strong August with total mortgage approvals up 18 per cent year-on-year and remortgages at their highest level since October 2008. Compared to August last year, the number of remortgage approvals was reported to have grown by 29 per cent from 31,741 transactions to 40,931. On a monthly basis this accounted for a 5 per cent rise.

Research from Connells Survey & Valuation agreed that remortgage activity had surged in August going so far as to say that it had outperformed all other areas of the housing market. It added that the number of valuations for remortgaging rose 25 per cent in August compared to July. On the back of this growth, the number of remortgage valuations were now up by 102 per cent compared to August 2014 – a doubling in the space of twelve months.

It’s clear that there has been little in the way of a summer slowdown in the mortgage market and especially within the remortgage sector. We have seen some hugely positive figures being bandied around. In terms of products there remains a strong band of competitively priced products with homeowners best placed to benefit from some affordable and highly attractive rates. And this is where the frustration continues to manifest itself as all too many continue to sit on the sidelines and remain blissfully ignorant of the potential benefits on offer. Looking forward it will be interesting to monitor both activity and pricing as we come to the year end and there is no doubt that this will be reflected in the raft of statistical data which continues to dominate headlines surrounding within the remortgage sector.

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