Remortgaging accounted for only 25% of loans in August, the lowest proportion in over 10 years, according to the latest survey data from the Council of Mortgage Lenders. The large remortgage sheds and panel managers will no doubt be suffering more pain.
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.
Ian Long, director of St Trinity Asset Management, comments on today’s CML figures: “For those who have managed to secure mortgages, monthly payments are relatively cheap — and have been throughout the last two years. The average first-time buyer pays just 13.5% of their monthly income on interest payments. Increased affordability played a pivotal role in keeping down the number of repossessions and borrowers in arrears during the recession. But in the next six months, this may change. It will not be too long before the MPC has to hike the base rate to combat persistently high inflation. This will be a financial shock to the system for borrowers locked into tracker mortgages who have become accustomed to record low repayments. Many of these have increased their monthly commitments with this extra disposable cash each month, and may find their finances under increasing strain when interest rates — and monthly payments — rise. Many borrowers are looking to fix rates now, if they can afford it, before interest rates rise. But remortgaging is being reined in by lenders’ tight criteria, preventing thousands from accessing prudent refinancing deals. Unless more remortgage products are made accessible — and affordable – a lot more borrowers will face the prospect of falling into arrears next year.”