Proactive intermediaries & a cyclical market: Barclays Quarterly Remortgage Review

Whilst I don’t want to dwell too much on H1 2020, in any fast-moving market, it’s important to remember – and learn from - the past when looking to the future.

Focusing on the remortgage sector, analysis by LMS and the Centre of Economics and Business Research (CEBR) found that while the number of remortgage approvals fell by 30 per cent between quarters one and two as the lockdown restrictions suspended the market, the value of remortgages rose. Using its Remortgage Healthcheck Index to measure different types of activity and sentiment in the first and second quarters of the year, the remortgage approvals indicator highlighted an increase from 47 to 59. The index uses different indicators to measure activity in the remortgage market. Scores between 40 and 60 are considered neutral and a score below 40 is considered negative.

Moving into Q3, July saw the purchase market continue to rebound strongly as mortgage approvals for new properties rose sharply. However, remortgage business remained static, dragging down overall market totals. Bank of England data highlighted that there were 66,300 approvals for purchase in July and although this figure remained short of the 73,600 peak in February, it was on par with the whole of 2019 which saw an average of 65,800 purchase approvals per month. Remortgage approvals were suggested to be unchanged from June, with 36,000 completed – still below the 49,000 average from 2019 and February’s peak of 52,600. However, internal product transfers were not included in the Bank of England data which only accounts for remortgages completed with a new lender.

Additional data from LMS highlighted that remortgage instruction volumes fell by nearly a third (31%) between July and August. Month on month, completion volumes fell by 14%, with pipeline volumes decreasing by 18% as volumes dropped off. The cancellation rate stayed steady between July and August, falling by just 0.3%. Of those who did remortgage, 42% were said to have increased their loan size in August.

Delving deeper into customer borrowing habits, it was encouraging to see that half of borrowers who chose to remortgage in August saw a significant decrease of just over £200 in their monthly payments. One of the main reasons cited for this was the fact that lenders continued to offer attractively priced fixed-rate packages as they passed their lower borrowing costs onto customers. August also saw the release of a survey from Aldermore which suggested that seven in 10 homeowners were looking to make improvements to their home post-lockdown, a figure which prompted some talk of a remortgage mini boom.

Moving into September, data from the MBT Affordability Index outlined that the average maximum loan size available to remortgage clients and home movers increased in September. MBT found that the average maximum loan available to remortgage clients was £279,671 in September, compared to £268,184 in August. For home movers, the average maximum loan in September was £324,975, up from £317,750 in August.

Borrowers are also being urged to act quickly to lock into a new mortgage deal, as mortgage rates were suggested to be rising while the number of available deals declined. Figures published in the latest Moneyfacts UK Mortgage Trends Treasury Report showed that the average two-year fixed mortgage rate has increased by 0.14% month-on-month, up from 2.24% at the start of September to 2.38% on 1 October. Meanwhile, the average five-year mortgage rate has increased by 0.13%, up from 2.49% in September to 2.62% in October. Whether this is a trend which is likely to continue remains to be seen, although rates will remain highly competitive in a low interest rate environment and despite some contraction in higher LTV lending, lenders are working on solutions to meet a wider variety of borrowing requirements moving forward.

The remortgage market is certainly not immune to wider influencing factors, including the current pandemic, but it is also a cyclical beast which works in tandem with maturing fixed-rate deals and the fact remains that these maturity dates don’t change. Meaning that a huge number of remortgage deals will have expired during the lockdown period and will continue to expire in the coming months. And proactive intermediaries who have got even closer to their existing client bank over this challenging time will be best positioned to meet their borrowing demands now and in the future.

Now, let’s see what the rest of Q4 has in store for us.