Rob Clifford is chief executive of If I Were You and CENTURY 21 UK
Pre-Credit Crunch the remortgage sector seemed nothing short of an unstoppable force of nature – the market was awash with remortgage deals from a plethora of established, as well as barely-formed, lenders which meant there was always plenty of opportunity to refinance and, as most borrowers tended to do, release equity in their properties which were benefiting from consistent house price inflation. The regulator certainly didn’t need to worry about a lack of consumer choice.
Now, of course, following the recession and the progression of mortgage regulation, we find that the remortgage market is not looking as prosperous as it could. As the FCA’s Lynda Woodall recently pointed out in her address to the Financial Services Expo, the remortgage market “remains very subdued” and it’s clear that the use of remortgaging “to fund consumption and fund debt” has proved to be unsustainable, at least at the rate of knots it once did. I do worry that some commentators seem to regard remortgaging as akin to sleeping in a cockroach-infested trench – but many miss the point that consumers deserve a vibrant remortgage market and deserve to be able to bag the best product possible.
The FCA, of course, is absolutely right in that we have a much changed remortgage market from that which existed six/seven/eight years ago. The most recent lending figures from the CML for July this year tell their own story – remortgaging was down by both volume and value compared to the same month just a year ago. The number of loans – 25,100 – while up 4% on the previous month was 15% down year-on-year. Remortgages totalled £3.9 billion in value, again a pleasing 3% increase on June 2014, despite the total value beingmarginally down on July 2013.
It feels like the remortgage market has reached a level it is having difficulty pushing on from, and this is due to a number of factors including the continuing low Bank Base Rate which results in many borrowers becoming wedded to their current deals, not to mention the large number of ‘mortgage prisoners’ stuck on their current rates due to much more stringent affordability verification resulting from the MMR.
That said, there is definitely some light at the end of the tunnel and, particularly at some LTV levels, we certainly can’t say that lenders are failing to innovate and offer head-turning rates in order to encourage borrowers to bag a better deal. On the contrary, there has clearly been something of a ‘rate war’ over the summer and since, which might just be having the desired effect. Exhibit A to support this argument is the most recent set of data from the Bank of England in terms of mortgage approvals – in August this year remortgage approvals were the only category of loan to out-perform their six-month average numbering 31,978 loans.
You’d be right to argue that this number comes from a low base however there are a great many demand-drivers in the remortgage market which I believe will result in a far healthier sector over the months and years ahead. Number one of course is the fact we will see the first increase in Bank Base Rate during the next year, which will act as the catalyst for many existing borrowers to begin, at the very least, looking at their remortgage options. It is effectively the firing of a starting pistol which will be augmented by the ongoing increase in house prices across many parts of the UK. This in itself should place many more homeowners in a much more positive position in terms of their available equity and, coupled with the broader economic recovery, could help these borrowers to strengthen their creditworthiness, thereby enhancing consumer choice.
Lenders, as I’ve said here, certainly appear to be preparing themselves and borrowers for the move in Base Rate. We are now seeing fire-year fixed rate deals below 3% for the first time as lenders seek to tempt borrowers to switch deals and grab these low rates for a period during which there will be undoubtedly be a number of rate movements imposed by the MPC.
For advisers who have been attracting the majority of their business from the house purchase space, this will certainly add further opportunity to speak to more clients and generate new business. The more savvy practitioners will no doubt be positioning themselves strongly in the remortgage space in order to benefit from the anticipated and inevitable consumer demand. I for one feel confident that we are looking at a future where the remortgage market strengthens considerably and that those who have the nous and marketing edge to grasp this opportunity will certainly not regret their work in preparing for it.