"There is little remortgage related data available for September but from speaking to intermediaries up and down the country there are certainly strong levels of demand emerging from their client banks."
This competitive lending push came on the back of data from the Bank of England and FCA's MLAR which outlined that the average interest rate decreased by a further 8 bps in Q2 2016 to 2.56%, the lowest rate since the MLAR series began in 2007. This was said to be driven by a decrease in the fixed rate of 6 bps to 2.60%, and a decrease in the variable rate of 17 bps to 2.35%. The average interest rate on total amounts outstanding also decreased by 5 bps to 2.99%, another record low.
These statistics were only released towards the back-end of Q3 but gave rise to strong indications of where potential trends may be heading. Of course this is not to suggest that such product movement is some kind of anomaly, or that I can see into the future. The costs of lending are always under the microscope and this is especially apparent amidst some less than harmonious economic conditions. Which leads to the question – how have these factors affected volume and activity levels?
Well, we first have to bear in mind that July and August are notoriously sluggish months for the mortgage market as a whole, and represent the first full months of lending since the EU referendum. These factors were largely reflected in the CML findings for July which showed a month-on-month decline in first-time buyer and home mover activity. However, a beacon of light continued to shine within the remortgage sector with borrowers demonstrating their appetite to take advantage of the highly competitive deals on offer. A fact underlined by July’s month-on-month and year-on-year growth in remortgage lending. A total of £6bn was borrowed for remortgage purposes which, alongside April 2016, was reported to be the highest monthly amount since January 2009. This was up seven% on June figures and 20% compared to a year ago. This comprised of 33,400 loans, up three% month-on-month and 10% compared to a year ago.
This sense of optimism continued into August and although CML findings suggested that remortgaging levels fell slightly by value when compared to July, the number of homeowner remortgages rose to its highest monthly level since July 2009. Breaking this down, remortgage activity totalled £5.9bn, down two% on July but up 41% compared to a year ago. This amounted to 34,900 loans, up four% month-on-month and 40% compared to a year ago.
In other big August news there was the highly anticipated base rate cut to 0.25% from the previous record low of 0.5%. The Bank also rolled out £60billion more quantitative easing, £10billion of corporate bond-buying and a £100million Funding for Lending-style scheme.
Inevitably this decision to slash interest rates served as having a positive impact on the remortgage market. As was also reflected in a report from LSL which showed that the number of remortgage loans surged to 36,195 in August - an 8% increase from 33,400 in July and a 45% increase year-on-year - to reach its highest level in over seven years. However, in a reflection of the CML data, the overall value of gross remortgage lending was said to have fallen by 2% from £6.0bn in July to £5.9bn in August. And the average remortgage loan amount dropped by 6% between July and August from £172,184 to £162,268.
Additional LSL research illustrated that 11% of remortgagors made monthly savings of over £500 in August due to falling rates following the Bank Rate cut. The figure represented an increase of two percentage points from July and four percentage points compared with June - to reach the highest level seen this year.
At the time of writing there is little remortgage related data available for September but from speaking to intermediaries up and down the country there are certainly strong levels of demand emerging from their client banks. Harking back to the LSL data, it was great to see figures such as these bandied around as it’s often seeing pounds and pence savings outlined in black and white which trigger homeowners to pick up the phone and speak to a mortgage intermediary. The prospect of potentially freeing up more than £500 a month is a highly positive message to get out there and certainly enough to make homeowners think about re-evaluating their current mortgage requirements. As such, it was also noteworthy to see a recent call to action from the Legal & General Mortgage Club in the form of a new campaign targeting borrowers sitting on a Standard Variable Rate. Intermediaries will be supported by new literature from Legal & General to help encourage borrowers to consider remortgaging, including leaflets and email templates to contact existing clients.
So let me finish this Q3 remortgage review by echoing the words of Jeremy Duncombe, Director of Legal & General Mortgage Club who said: “Now is a great time for advisers to show their worth. Brokers should look to contact their books and build long-lasting relationships with borrowers by helping them to navigate through the thousands of products in the market and secure a new deal on their mortgage.” And to reiterate, there is no time like the present to encourage clients to take advantage of the competitive nature of the current marketplace and act sooner rather than later.
