First-time buyers seeking mortgage loans saw a higher proportion of approvals agreed in the months preceding the EU referendum vote, the latest Mortgage Market Tracker from the Intermediary Mortgage Lenders Association reveals.
Q2 2016 saw 57% of first-time buyer enquiries result in agreement-in-principles, up from 51% in Q1 2016 – a rise of 6%.
The tracker – using data from BDRC Continental – examines applicants’ journey through the intermediary channel from their initial mortgage enquiry through to completion. The Q2 edition splits out the results by firms dealing with first-time buyers, homemovers, remortgagors, buy-to-let borrowers and applicants for specialist loans.
It found the mortgage market remained in robust health in the lead up to the Brexit vote, with lenders remaining open for business despite average enquiries falling in April, May and June as buyers showed caution in the run-up to the referendum on 24 June.
Reflecting this, intermediaries dealt with an average of 44 new enquiries in Q2, down from 49 in Q1. The average number of enquiries received from first-time buyers and homemovers was 46, both down from 55 in Q1. Remortgagors showed slightly more caution, with average enquiry levels dropping to 38 per intermediary in Q2, compared to 48 in Q1.
However, overall more enquiries in Q2 translated into AIPs (59%, up from 55% in Q1) as lenders remained keen to support borrowers despite the political uncertainty. First-time buyers saw the greatest improvement, with 57% of enquiries converting to AIPs in Q2 up from 51% in Q1. Overall, homemovers saw the highest conversion rate at 61%, followed by remortgagers at 60%, buy-to-let at 59%, and specialist loans at 58%.
According to brokers, lender decisions to decline applications accounted for less than a quarter (23%) of dropouts in between AIP and the completion stage in Q2, notwithstanding the option for those affected to keep progressing their application via another lender. This compares to 28% in Q1, as low drop-out rates due to lender declines have further fallen, providing more evidence of lender support for borrowers.
Summary table: Borrowers’ progress through the intermediary channel, Q2 2016
|Average number of enquiries||44||46||46||38||45||48|
|Initial enquiries to AIPs||59%||57%||61%||60%||59%||58%|
|AIPs to full applications||67%||62%||69%||70%||67%||66%|
|Applications to offers||75%||71%||79%||77%||74%||76%|
|Offers to completions||75%||69%||81%||77%||75%||75%|
|AIPs to completions||38%||30%||44%||42%||37%||38%|
|Applications to completions||56%||49%||64%||59%||56%||57%
Beyond an agreement in principal
IMLA’s Tracker shows that 67% of AIPs progressed to an application in Q2, down slightly from 69% in Q1. This proportion remained higher amid firms focusing on homemover and remortgage cases, but every borrower type showed slightly more caution than in Q1, likely down to the prevailing political uncertainty.
Borrower drop-outs at this stage are typically caused by factors such as affordability constraints; some aspiring borrowers making initial enquiries without looking to progress immediately; and others shopping around and exploring their options via multiple firms or channels.
Of those borrowers receiving offers, 75% progressed to completion in Q2 compared to 76% in Q1.
Quarter-on-quarter comparison: Borrowers’ progress through the intermediary channel
|Q1 2016 (all)||Q2 2016 (all)||Change|
|Average number of enquiries||49||44||-5|
|Initial enquiries to AIPs||55%||59%||+4%|
|AIPs to full applications||69%||67%||-2%|
|Applications to offers||76%||75%||-1%|
|Offers to completions||76%||75%||-1%|
|Dropouts due to lender declines||28%||23%||-5%|
The index also tracks business confidence among intermediary firms on a quarterly basis. Outlook for the intermediary sector had improved in the three months leading up to Brexit, with more brokers reporting being ‘very’ confident for the future than in Q1. Brokers also showed more confidence in their own business outlook. Overall confidence dipped from last year, but brokers remained upbeat.
Intermediary confidence since Q1 2015
|Q1 2015||Q2 2015||Q3 2015||Q4 2015||Q1 2016||Q2 2016|
|Very confident in the mortgage industry outlook||57||55||61||61||42||39|
|Fairly confident in the mortgage industry outlook||36||44||36||36||55||56|
|Very confident in the intermediary sector outlook||71||71||67||65||51||54|
|Fairly confident in the intermediary sector outlook||22||28||28||33||46||43|
|Very confident in their own business outlook||69||76||78||77||59||60|
|Fairly confident in their own business outlook||30||23||19||21||38||39|
Peter Williams (pictured), executive Director of IMLA, said: “A dip in enquiry volumes is no more than might be expected in an atmosphere of growing uncertainty. It suggests some buyers reined back on purchasing property in Q2, possibly waiting to see the outcome of the EU referendum and any impact on property prices. However, those that pressed on with a mortgage enquiry saw more success in getting an agreement-in-principle, as lenders continued supporting the market despite the political headwinds. This is encouraging news for the many borrowers who will continue to rely on the mortgage market to move onto or up the housing ladder.
“Next quarter we will have a clearer view of the consequences of the Brexit vote – though this is by no means the only element impacting upon supply and demand in the market. The increased tax burdens for landlords from stamp duty reforms, changes to the wear and tear allowance, and the upcoming reduction in interest relief, may see many remortgage to a lower rate as one way of clawing back some lost income.
“Borrowers must now find their way in the new ultra-low interest rate environment. Mortgage pricing is already very low and fixed rate mortgages are unlikely to fall further due to being priced from the swap curve. However, savers may well feel the difference of falling rates. Any inflation rise would further eat into any savings, making building the cash for a deposit more challenging. The new climate is certainly better for borrowers than for savers.”