August remortgage lending stagnated
The Council for Mortgage Lenders reported the July remortgage figure earlier this month. It was significantly down on May’s £3.8bn, by £600m.
This new estimate for August, based on LMS’s many thousands of conveyancing transactions that month, suggests that the remortgage market is remaining stagnant.
This figure is 26.3% lower than this time last year (£4.3m in August 2011), and the last time that there was a lower monthly figure was back in December of 2010.
Remortgages now represent only a quarter of all gross mortgage lending down from 33% in August last year. This is the lowest proportion of total mortgages for 12 years (December 1999).
The average remortgage loan amount has risen by over £2,600, to £135,427 in August, the highest since the beginning of this year.
Average loan amounts have been gradually rising since February and August’s figure is the highest it has been since January 2009 (£138,322).
Although loan amounts continue to be below the peak of £138,350 recorded in December 2008, they are 11% up on this time last year (£125,000), which represents a significantly higher growth than house price inflation (of 7.5%) over the same period.
People are taking out larger loans to release equity, either for spending or repaying off other debts.
LMS estimates that the number of remortgage loans will decrease by 3% to 23,400 in August, from 24,100 in July, remaining well below the more typical 30,000 during 2011.
Andy Knee, chief executive of LMS, says: “Whilst completion levels last month were disappointing these represent cases that started life some time ago.
“In August we saw a significant uplift in new business and this is now beginning to flow through into completions. Therefore September and October are expected to be much stronger months for remortgage lending as customers complete their switches to one of the numerous long term fix rates at below 3%.
“With September new application levels having stabilised at this higher run rate we can expect a strong end to the year for the remortgage market.
“However remortgage lending as a proportion of overall lending may still appear subdued as we are also seeing a significant uplift in house purchase activity driven by the government’s New Buy scheme. Many of these customers and the builders they are buying from will be highly motivated to complete their purchase before the end of the year so I am anticipating a strong end to the year for purchase lending too.”
Borrowers in August were remortgaging every 4 years 9 months on average, down 9.5% from May (5 years 3 months), and down 8.1% from the average for last year (5 years 2 months). Back in 2008 remortgages took place as frequently as every 3 years 7 months.
The Loan to Value ratio (LTV’s) for remortgages averaged 58% in August, the same as it was in July but slightly above the figure for June. This has remained reasonably constant over the last two years.
Unsurprisingly, the LTV of the original purchase loan, at the time when the mortgage was taken out, was higher at 69%.
The average value by which the new remortgage value exceeded the redeeming mortgage value in July is £17,976, 11.3% higher than the £16,145 in July. This implies a total of £420.5m equity withdrawal in August from remortgaging. The growth in equity withdrawal through remortgaging is most likely due to households wishing to pay off more expensive debts such as credit cards or to pay off large expenses. Also people may be taking the opportunity to have a bit more cash in their pockets in recessionary times.
Although the amount of equity being released is now on the rise, the figure for August is 24% lower than this time last year. Current restrictions on LTV’s, for competitive deals, may be constraining the growth in the release of equity.
The average remortgage loan amount varies considerably across the major regions of the UK – as do house prices.
In London, the average remortgage value for August was £221,882, whereas in Wales it was just £92,691, around 42% of the average property value in the capital. London, not surprisingly has the lowest remortgage LTV at 47%, compared with 78% in the North West.
Regional variations in the frequency of remortgaging are reasonably small, ranging from 5.29 years in the North East to 4.23 years in London.
Around two-thirds of all regions have seen increases in the frequency in remortgaging over the last month.
Only the East Midlands, West Midlands and London have experienced a fall.
The average household income for remortgages was £42,932 in July, the most recent figures available; this is up 2.9% on June and 2.3% higher than this time last year.
The average new mortgage rate has remained the same since June, standing at 3.82%. This is the highest mortgage rate since June 2011. This mortgage rate implies that 19.2% of household income is being used to pay off the mortgage.
This is lower than the typical rate for a new purchase mortgage which is currently 22.5%.
The affordability of new loans, both for purchase and for remortgages is much improved when compared to the years prior to the credit crunch. Although interest rates have risen over the last year, incomes have risen, and remortgage affordability, expressed as mortgage repayments as a percentage of household income, has fallen from heights of 26%, at the beginning of 2008, to the present