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Remortgaging levels subside

Sarah Davidson

October 12, 2012

Lending for house purchase rose by 12% compared to July, and by 11% compared to the same period last year.

A total of 55,300 loans were advanced for house purchase in August, worth £8.4bn, compared to 49, 500 in July and 49,900 in August 2011, the largest number of loans advanced in one month since the summer of 2010.

In contrast, remortgage lending continued its downward trend, accounting for just 22% of gross lending in August, compared to 33% in August last year.

Remortgage lending totalled £2.9bn in August, down by almost 33% compared to the same period last year and by over 9% from July.

This weakness in remortgage lending weighed down overall gross mortgage lending, which was 2% lower than the same period last year but up slightly compared to the previous month.

Gross lending totalled £12.9bn in August compared to £12.8bn in July.

Meanwhile, lending to first-time buyers rose by 14% in August compared to July and up by 18% on the same time last year.

A total of 21, 600 loans were advanced to first-time buyers worth £2.8bn, only 2,600 fewer loans than in March when lending to first-time buyeres was elevated by the end of the stamp duty holiday.

For the second consecutive month, the average loan to value ratio for a first-time buyer remained above 80%.

At 81% the LTV ratio is at its highest point in over three years. Also contributing to the increase in house purchase lending, a total of 33,800 loans worth £5.7bn were advanced to home movers in August. This represented a 10.5% increase on July and a 7% rise compared to August last year.

CML director general Paul Smee said: “House purchase lending showed an encouraging rise in August but it’s unclear whether this reflects just the unravelling of previous factors such as the Jubilee and the Olympic Games or a shift in the underlying picture.

“We will wait and see whether schemes such as Funding for Lending and NewBuy provide a further boost to the market in coming months.”

Hugh Wade-Jones, director of Enness Private Clients, said: “The increase in house purchases is a welcome boost but let’s not get carried away. The market is fundamentally volatile and trends rapidly reverse.

“And it’s a very different story in the remortgage market. In many cases, the SVR rate homeowners are on is low enough for them not to feel incentivised to remortgage. With some lenders no longer offering interest-only loans, many borrowers who currently have an interest-only product simply cannot afford to switch to a repayment mortgage.

“But there are also many people who simply can’t remortgage due to low, zero or negative equity. Their fate is to sit on the SVR and hope that the Base Rate stays at its current low level. While the prospect of an increase happening soon is slim, they remain hostages to fortune.”

Andy Knee, managing director of LMS, said the fall in remortgage activity represented the lowest proportion of the market since 1999.

“This is to be expected as interest rates are currently at an historic low level and many people – especially those on variable rates – are benefitting from this,” he added.

Brian Murphy, head of lending at Mortgage Advice Bureau, said he had seen applications for purchase and remortgage borrowing increase by 1.9% since August meaning they are now 7.9% higher than at the beginning of the year.

And he added: “This trend is set to continue and grow as we approach the end of 2012 – spurred on by the imminent arrival of the Santander SVR increase, the availability of good value 3% mortgage deals and the increasing uncertainty about the economic prospects for 2013.”


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