Remortgaging hits 10-year low

Nia Williams

October 12, 2010

This is according to the latest survey data from the Council of Mortgage Lenders.

August saw 25,000 remortgage loans, worth £3 billion, advanced by lenders. The number of loans was down 13% and the value down 14% from July. Both were 19% lower than a year ago.

With interest rates expected to remain low for some time yet, there is little incentive for borrowers to move away from low reversion rates at the end of tie-in periods. And continuing tight credit conditions mean that some borrowers are unable to access new refinancing deals. So there is little prospect of a significant rise in remortgaging in the coming months.

There were 51,600 house purchase loans (worth £7.7 billion) advanced in August, a fall of 8% (by volume and value) compared to July. While this is in line with the usual summer lull in market activity, a rise of 3% (by volume) and 12% (by value) from August 2009 shows that 2010 house purchase lending is still proving slightly more robust than the low levels in the equivalent months of 2009.

The 18,300 loans (worth £2.3 billion) advanced to first-time buyers in August represented a decline of 5% (by volume) and 4% (by value) from July. First-time buyer loans were also down 3% by number, but up 5% by value, compared with August last year. Deposit criteria for first-time buyers have varied a little on a monthly basis throughout the year to date, and appear to have eased again somewhat in August. First-time buyers in August put down on average a 21% deposit, compared to 24% in July.

Home movers suffered more than first-time buyers from the summer lull in August with the 33,200 loans (worth £5.4 billion) advanced down 10% (by volume and value) on July and average deposits up from 33% in July to 34%. This saw movers in August borrowing at the lowest loan-to-value ratio for six years. However, in terms of lending levels there was some improvement on a year ago, with home-mover loans 7% up (by volume) and 13% up (by value) from August 2009.

Fixed-rate products are enjoying a slow shift back to popularity with 52% of new borrowers opting for one in August, up from 51% in July. This is still far below 2009, when in July the proportion of new fixed-rate mortgages hit 80% but started to wane in popularity straight after.

CML director general Michael Coogan said: “August is a traditionally slow month for mortgage lending and it was no different this year.

“We expect a quiet market to continue for the foreseeable future. While we do not know what the impact of the comprehensive spending review will be on our sector, it will clearly contain austerity measures that will likely further dampen consumers’ appetite to borrow.

“We would expect lending to slow more significantly, year on year, as we head towards the end of the year, and it is unlikely that the uncertain environment will encourage a tick up of mortgage activity in 2011.

“With some uncertainty surrounding future house price trends, we would expect a muted market in the next few years. The problem of excess capital, that led to record lending and borrowing in 2007, has self corrected and will not return.”

Commenting, Brian Murphy, head of lending at Mortgage Advice Bureau, said: “It’s the same old story for the mortgage market, only this time we’re face to face with the psychological barrier of a 10-year remortgage low. We’d expect house purchase numbers to be suppressed due to the August summer holiday lull, but remortgaging levels should have been relatively unaffected in contrast.

“The CML’s finding that remortgaging accounted for just 25% of all loans accurately reflects our own research. In a normal market, you’d expect to find remortgaging levels nearer 40%-50% but there are currently no financial incentives for borrowers to switch. In line with the CML we expect the mortgage market to remain very subdued in the next few months.”

Jonathan Samuels, CEO of Drawbridge Finance, said: “Seasonal factors aside, the latest figures from the CML emphasise the increasing gulf that is developing between the owner-occupier and the professional property investor.

“Whereas activity levels in the mainstream mortgage market are low and look set to remain that way for at least the next six months, the appetite for loans among professional property investors is growing exponentially.

“The professional property investor is often not just contrarian but also knows that now and the months ahead represent an excellent buying opportunity, as downward pressure continues to be exerted on house prices.

“In August, we saw the number of agreements in principle for short-term finance rise by 128% on July, which reflects how professional property investors and landlords are increasingly making their move in an otherwise stagnant residential property market.”

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