"Looking forward, the associated costs of lending are always being assessed and in the coming months these are likely to come under increased scrutiny."
Within this period we also saw David Cameron formally announce the date of the UK's in/out referendum following negotiations at an EU summit. The lead-up to, and obvious aftermath of, the referendum inevitably dominated the media, financial services and the whole of the UK over the course of Q2 to again shunt the remortgage sector into the background. Not that this should in anyway diminish its importance.
In the micro –economic climate of mortgage market, with much of the spotlight taken away from the BTL arena and knock-on effect on house purchase activity, the remortgage market certainly came to the fore in April. Statistics from LMS suggested that remortgaging levels had soared to a post-recession high. It outlined that monthly gross remortgage lending rose to £6.4bn in April 2016 - the largest amount recorded since November 2008. This was said to represent a 36% increase from the £4.7bn recorded in March and represented a 48% uplift from April 2015’s figure of £4.3bn. The number of remortgage loans was also reported to have increased – by 41% – from 28,000 in March to 39,353 in April. This was the largest number since July 2009 when 39,500 were suggested to have remortgaged.
Figures released from the Council of Mortgage Lenders appeared to back this up. Data from the trade body showed that remortgage lending was the only lending type to show both month-on-month and year-on-year increases in April. It saw the highest volume of loans for remortgage in a month since July 2009, and the highest lending value for remortgage since January 2009. Breaking this down, remortgage activity totalled £6bn, up 25% on March and 40% compared to a year ago. This amounted to 34,800 loans, up 23% month-on-month and 30% compared to a year ago. To put this into some kind of perspective, over the same period, home movers borrowed £4.3bn, down 53% on March and 14% compared to a year ago. In terms of the fall in purchase activity across all levels, this was widely expected – especially when compared to the significant rises seen in March. If anything April illustrated something of a sense of calm throughout the industry and a collective sigh of relief after the sheer volume of deals being rushed though in late March.
Moving into May, this sense of calm continued within the mortgage market. However, there was no getting away from the fact that as the EU debate began to heat up; activity began to cool a little. Analysing the data, CML statistics outlined that remortgage activity totalled £5.2bn in May - a 15% drop on the previous month and the number of remortgage loans totalled 30,900 - down 12% month-on-month. It was certainly not all doom and gloom though as activity levels were still 30% higher than when compared to the same period a year ago and reached a level similar to those seen in the first three months of the year. The total of remortgage loans for the month was also said to be up 25% compared to a year ago. Which leads to the question of why the uptick and what were the released funds being used for?
Well, according to further research from LMS, during May, over half of those remortgaging decided to take advantage of the competitive rates available to lower their mortgage rate. According to the report, 32% were able to reduce their monthly outgoings by up to £500, while the number remortgaging to increase the size of their loan rose two percentage points from 24% to 26%. The number increasing their loan by more than £10,000 also increased in May to 19%, up three percentage points from a low of 16% in April. One in five (19%) borrowers were said to have used the cash released from remortgaging to spend on home improvements. 3% borrowed to help their children up the property ladder while 7% chose to pay off other debts.
Moving on, June was obviously dominated by one landmark event and its effect on the whole mortgage market remains to be seen. As far as we’re concerned it is business as usual but any lingering uncertainly is likely to dampen activity levels, particularly when it comes to house purchase. However, opportunities do remain for intermediaries. Mortgage Advice Bureau revealed that it received an ‘unprecedented’ number of remortgaging enquiries following Britain’s vote to leave the EU. In a post-referendum outcome comment, MAB explained that the uncertainty in the market caused a record number of customers to make remortgaging enquiries via its website.
Looking forward, the associated costs of lending are always being assessed and in the coming months these are likely to come under increased scrutiny. That’s not to say that rates are sure to rise or that the cost of mortgages will go up, it may be quite the opposite. But the early part of Q3 does provide a great time for homeowners to take advantage of some highly attractive deals to help stabilise financial outgoings in some potentially challenging times. This means that strong levels of remortgage opportunities will continue to emerge for proactive intermediaries who are interacting with their client base in the right way. And it will be interesting to see how these opportunities translate into volume and activity in our Q3 review.
