How did the remortgage market fare?
Nick Chadbourne is chief executive of LMS
It’s certainly been an interesting year for the UK property market. After a tumultuous 2020, the purchase market is booming thanks to the stamp duty holiday, low product rates, the post-Brexit ‘Boris Bounce’, and increased demand for larger properties due to home working.
While house prices dropped marginally in May, they still rose year on year by more than 8%.
When looking at remortgaging, activity has remained stable through the year. The busy purchase market has driven down interest rates as banks and building societies compete for activity, and remortgagers have been able to capitalise on this, often reducing their monthly payments substantially when the time comes to remortgage.
However, despite positive activity levels, we have not seen the increase in instructions in May that we would expect considering the large volume of ERCs due to expire in July.
The best deals on offer
A determining feature of May was the scale and appeal of mortgage choice on offer for borrowers as competition in the purchase market and the reopening of the economy instilled confidence in lenders.
According to the Moneyfacts UK Mortgage Trends Treasury Report, the number of deals available increased by 85, from 3,842 to 3,927 in May, some including sub-1% rates for the first time in almost four years.
Snapshot data revealed that instruction volumes rose by nearly 10%, as borrowers sought to capitalise on the low interest rates and increased competition to make significant savings by switching.
While it was great to see some borrowers benefitting from historically low rates and saving an average of £441 on their monthly repayments, we would expect to see a more significant surge in remortgage instructions throughout May as July has the largest number of product expiries of the year.
This means that a considerable number of people chose to stick with their lender and opted for a product transfer. With so many low rates available, borrowers who looked to remortgage may have found a cheaper rate than their previous product if they stayed with their current lender.
However, it is important that borrowers continue to consult a broker to ensure they access the best deal available to them.
In addition to low rates and increased product choice, we also saw an increase in customer confidence in May. Typically, we see a direct correlation between the proportion of homeowners increasing their loan sizes and borrower positivity, as increased borrowing signals confidence in the future of the economy.
In May, consumer confidence was at a high, with the largest proportion of those remortgaging choosing to increase their loan size (48%).
Rising house prices and the SDLT holiday no doubt encouraged homeowners to release equity in their property, with 36% of borrowers stating that this was their primary aim when remortgaging.
This decision could be driven out of a desire to assist family members with property purchases or to make investments in their own homes to accommodate new ways of working post-pandemic.
On the other hand, 42% of borrowers opted to increase their monthly remortgage repayments, saving an average of £511. This could signal increased confidence in the economy, with many taking money out to reinvest in their property.
Yet, a smaller proportion, 27%, wished to lower their monthly repayments, with an average decrease of £441. This reflects the borrower disparity following the pandemic, given increased pressure many face from economic fallout caused by COVID-19.
Overall market health
Overall, May was a stable month for the remortgage market. It is great to see increased competition between banks and lenders with new products being offered at such great rates, a clear sign of growing confidence in both the economy and housing market and giving brokers a strong opportunity to assist borrowers in accessing the best deals available to them.