Bob Hunt is chief executive of Paradigm Mortgage Services
While we are only a few weeks into the New Year, there is already much in the industry to discuss, debate and generally get our teeth into. And compared to the start of the last few years, I have noticed a much healthier degree of positivity within the mortgage market specifically about what the future might hold. Or am I merely an optimist who puts more focus on those nuggets of positivity?
Whatever the case might be I get the sense that news in the mortgage market, particularly around the increased level of remortgaging at the tail end of last year, has delivered a much more ‘glass half full’ outlook than we could have hoped for just six months ago.
The latest news is that remortgaging appears to be making something of a revival. The Bank of England’s remortgage approval figures for November 2010 were up considerably on the previous month (by 4% to 26,000), followed by last week’s Council of Mortgage Lenders’ Regulated Mortgage Survey, which highlighted the Bank’s approval figures as being likely to translate into much more positive remortgage completion figures in its next set of data.
The indicators do seem to be suggesting that remortgaging is making something of a comeback although we should not work ourselves up into too much of lather given the very low levels these increases are coming from.
That said, it is difficult not to feel a slight warm glow that a market which had as recently as quarter three last year been described as ‘dead’ is looking if not healthy then at least alive, breathing and regaining all its faculties.
For clarity the general impression - one I concur with - is that while there is unlikely to be an increase in the total market size from that which we have seen during 2010, i.e. circa £140bn, the distribution of the total volume is likely to shift to a greater share of remortgage business, which is of course good news for intermediaries given it’s a segment where intermediary market share is dominant.
So, where has this remortgage activity come from? Considering that we still have a 0.5% Bank Base Rate and while product rates appear attractive, many borrowers are still financially better off sitting on their lender’s SVR. There are many reasons why people remortgage, however, there does seem to have been something of a mental shift amongst a significant number of borrowers and, ironically, it may well be that the longer Base Rate stays at its current level, the more people will remortgage.
This decision is based on the understanding that we are getting closer and closer to a rate rise every month the MPC keeps rates on hold. Plus, of course, the market chatter has changed tack in the last six months.
Any borrower reading the personal finance pages with regard to remortgaging over the last few months, could not have failed to see the number of advisers and experts extolling the virtue of remortgaging now rather than waiting for the rise in Base Rate when every untied mortgage holder under the sun will be looking for a remortgage deal.
The advice of ‘don’t leave it too late’ is slowly hitting home for many borrowers.
They are willing to pay a little bit more each month, perhaps on a fixed rate, if it gives them a greater degree of certainty about how much they have to pay over the next two to three years. The alternative is to sit tight, waiting for that MPC decision each month, knowing full well that every other borrower on an SVR is doing the same.
When the rate rise is announced, it will be like the remortgage race starting gun going off and it will only be at that point that many borrowers will know if they are able to remortgage at all.
Better perhaps to find out that rather information now, and hopefully remortgage in a quieter time, rather than compete with a vastly inflated field of runners come the rate rise.
Another factor making the case for acting sooner is to ensure not to miss out on the attractive fixed terms currently on offer. As I write, I’m aware of many lenders reacting to the increase in five-year swap rates which closed last week at 2.83%, something of a rise since last Octobers low of 1.94%.
Key lenders have recently pulled many of the offers available, pushing up rates on new fixed propositions.
Some will argue that remortgaging now does not make financial sense or that, if you are a mainstream borrower who is a good credit risk, then there is nothing to fear from waiting and opting to remortgage later.
However, given the above, and the fact that as house prices continue to fall some borrowers may find their LTV rises taking them out of the band that might attract a lower rate, one can see why so many consider this decision something of a dilemma.
There are other factors too, for example, how many people have come out of the recession in a position where they are completely sure about their current credit status? If you are self-employed will there be any appetite to lend to you, and will there be a product range to choose from?
Who is to know what the full impact of the Mortgage Market Review (MMR) will be? The proposals in their worst state if ratified could turn even more borrowers into the great mortgage unwanted.
Purchase activity has dominated the marketplace for the last couple of years and as we move on, we may be about to witness the return of a rather stronger, if perhaps not quite dominant, remortgage market.
It’s difficult to predict with any certainty what will happen next however advisers must certainly ensure they are in a position to meet the demands of all potential clients – whatever they might be.
