An improving remortgage market: Barclays quarterly review

Reading back through my quarter one evaluation of this sector, some of the closing comments contained a degree of muted optimism for the upcoming months. And it appears that these have been largely justified, but maybe not fully.

At the last time of writing ‘hot off the press’ were the latest CML lending trends data for February, so to keep with this trend let’s begin by looking at the following month’s activity. The figures for March showed that remortgage lending increased month-on-month with 26,600 loans advanced - up 19 per cent on February and 6 per cent up on March 2014. The value of these loans (£4.2 billion) also increased month-on-month by 24 per cent and was up 14 per cent year-on-year compared to March 2014.

So, putting Q1 2015 to bed, statistics showed that remortgage lending increased quarter-on-quarter with 75,400 loans advanced - up 3 per cent on the fourth quarter of 2014 but down 5 per cent on the same quarter last year. The value of these loans (£11.8 billion) were also reported to have increased quarter-on-quarter by 6 per cent and was up 2 per cent year-on-year compared to quarter one 2014.

It does already seem like an age ago but what we have to bear in mind when considering these figures, and ones over the following month or so is how the country was gripped by the general election and therefore a somewhat prolonged period of market uncertainly. However, despite this the trade body went on to suggest that approvals for house purchase in April showed a 10 per cent increase compared to March, the largest monthly rise since early 2009. Remortgage approvals were also reported to have risen by 10 per cent. One of the reasons highlighted being that more households were trying to take advantage of the highly competitive mortgage rates on offer. The CML commentary also added that – “overall, data on housing approvals pointed towards a market that is set to improve gently”.

This mild optimism was also heightened by some positive remortgage headlines which began to emerge after the General Election fever had dissipated. The word ‘comeback’ was even being bandied around amidst reports of the number of remortgage approvals rising year-on-year for the third consecutive month. Data from the Bank of England showed that there were 36,003 loans approved for remortgage in May, a 26.5 per cent increase on the 28,455 loans approved in May 2014.

However, whilst lingering positivity within the general lending community remains, the latest figures from the CML underline just how changeable the remortgage market currently is. The data suggested that remortgage activity for May fell 10 per cent in terms of both the amount and volume of loans being borrowed when compared to April. It was also said to have dipped in comparison to May last year continuing the relatively subdued homeowner remortgage activity levels seen since around 2009. But let’s not dwell on those disappointing figures for too long and get back on a positive track. Prospective borrowers are suggested to be seeking out mortgage advice in greater numbers. According to research from LMS, more than two-fifths of remortgagors were reported to have consulted an independent adviser or broker in April, up from 39 per cent in March and 36 per cent in February.

The research also showed that almost two-thirds of borrowers said they were remortgaging to secure a lower mortgage rate, down from 68 per cent in March with 30 per cent of those borrowers increasing the size of their loan. One in five increased their loan amount by as much as £10,000. However, almost two-fifths remortgaged to reduce their monthly payments by up to £500 in order to free up cash.

When asked for other reasons behind the remortgage, 22 per cent said for home improvements, and one in ten wanted to pay off debt. Just two per cent remortgaged to find their children a deposit for a home. Meanwhile, a little under half of the remortgagors asked were close to the end of their deal, suggesting that borrowers were shopping proactively, not simply out of necessity. Almost eight out of ten borrowers were reported to have ended up switching lenders to get the best deal.

In summary, it’s fair to say that we’ve seen a slightly up and down quarter. But to the same extent these swings have been far from monumental and just underline the challenges being faced within the remortgage sector. As such it’s important to maintain focus and perspective. The recent Bank of England data for example suggested that remortgage lending accounted for 32 per cent of the total market in May, which is a positive move in the right direction. But when compared to its 50 per cent market share at the end of 2008 it highlights the subdued nature in terms of activity. On the flip side it also continues to emphasise its vast potential moving forward. So let’s not read too much into some relatively minor swings in volume, approvals and activity at such an early stage in its recovery. Let’s just concentrate on educating the growing proportion of homeowners willing to seek professional advice and make sure they receive the best service possible and benefit for hugely competitive rates to secure their short, medium and longer-term financial needs.