Remortgaging at four year high
Using data from over 250,000 monthly searches for mortgage products via 150+ comparison and broker websites, the Tracker shows more than half of search activity (55%) from April to June was focused on remortgaging, up from 35% in the previous three months to the highest quarterly figure since records began four years ago in Q2 2010.
Having accounted for just 26% of searches in Q2 2013, the focus on remortgaging has doubled in the last year as rates speculation fuelled by the Bank of England prompts more people to look at improving their existing deals.
In contrast, just 45% of product searches in Q2 2014 were by people looking to buy: down from 74% in the equivalent period last year, when buyer appetite was stoked by the launch of Help to Buy and historically low rates resulting from the Funding for Lending Scheme (FLS).
The data suggests that the subsequent rise of house prices and tightening of mortgage criteria have dampened interest in new loans for house purchases, with attention focusing instead on switching to a better deal before rates rise.
Nearly one in three (31%) searches for a purchase mortgage in Q2 2014 involved a borrower seeking a deal at 90% loan to value (LTV) or above, compared with just 5% among existing owners who were looking to remortgage.
One in five (20%) buyer searches specified a mortgage term of 30 years or longer, compared with one in twenty (5%) remortgage searches.
With detailed income and expenditure assessments now in place across the market, spreading the cost of a mortgage over a longer period can help customers to satisfy lenders that they can afford the monthly repayments. The data suggests potential new borrowers are especially keen to take this approach.
Spreading the cost of the average purchase loan sought – £147,814 – over a 30 or 35 year term can reduce monthly payments by £100 or more compared with the typical 25 year term, depending on the interest rate. But it also pushes up the total cost over the lifetime of the loan: potentially adding tens of thousands to the total amount a borrower has to repay.
Affordability rules also mean lenders have to consider post-retirement income before agreeing to a mortgage term that extends beyond the borrower’s normal retirement date.
Lenders are increasingly specifying maximum age limits for mortgages and the average end-of-term upper limit of 72 in Q2 2014 suggests some older consumers looking for an extended mortgage term may be unable to secure one.
Brian Murphy, head of lending at Mortgage Advice Bureau, said: “Remortgage lending may have been subdued in recent months, but these figures suggest there is a sizable swell of enthusiasm building up that is likely to break through as the year progresses and the inevitable rate rise approaches.
“Many existing owners have been sitting pretty with exceptionally low interest payments thanks to the 0.5% base rate.
“This won’t change overnight with incremental increases on the cards – but the prospect of a rate change makes it worth revisiting the decision to stick or twist with your existing mortgage.
“In some cases, the cost of an early exit fee or early repayment charge on a fixed-term deal can be outweighed by the benefit of a better rate.
“Personal circumstances will dictate whether it’s worth exiting early and locking into another rate or simply waiting it out with limited rises on the horizon.
“It pays to seek advice about the option that best suits your needs, which also applies to potential new borrowers hoping to spread their repayments.
“Longer mortgage terms can lessen the impact of rising prices on affordability, but one question you need to ask is whether the short-term gain of lower payments is worth the long-term pain of a bigger total bill.
“There are also age- and income-related criteria that apply if you want a mortgage term that reaches into your retirement, and advisers can help to explain the requirements that different lenders have.”