Maturities and rate rises to bring remortgage opportunities: Barclays Quarterly Review

With the end of Q3 also marking the close of the stamp duty holiday, it was inevitable that the purchase market would experience a temporary lull in demand. And, with speculation mounting around an upward move in the Bank of England base rate, that the spotlight would shine brightly on the remortgage market.

To coincide with this tranche of Q4 activity, and to help brokers bolster their remortgage business, Barclays conducted a study outlining some underlying factors which continue to hold back the remortgage sector from a consumer perspective, their behaviour and lingering misconceptions. This highlighted that nearly 49% of British homeowners have never investigated what other deals are on the market, even though a third (32%) know it could probably save them money. It also found that 28% of people don’t know what the standard variable rate is, and that 45% aren’t clued up on what loan to value means.

When it comes to those who do remortgage, the vast majority commonly switch to a fixed rate deal. 93% of customers who remortgaged in the first half of 2021 opted to lock in their rate for a fixed term. Two-year and five-year fixed terms were revealed to be the most popular term lengths, with 44% choosing a two-year fixed term and 44% opting for a five-year fixed term. Two-year fixed term deals were most popular with the under 30s, as 57% of this age group decided on a shorter term fixed rate period of two years. By contrast, homeowners aged 40-56 were most likely to commit to longer term five-year fixed rate deals, with 47% locking in their fixed monthly payment for this period.

It was clear from our research that many people find remortgaging a tricky subject to understand. As a result, homeowners are sticking with what they know and potentially missing out on lower monthly payments. This signifies good news for intermediaries in terms of the potential still out there and the tangible value that the advice process can offer.

Moving into November, an uplift in business was apparent, with the LMS Monthly Remortgage Snapshot showing that the volume of remortgage completions rose by 15% with instruction volumes also increasing, rising by 11% over the same timeframe. This Snapshot also outlined that the average monthly payment decrease for those who remortgaged in November was £193.39.

Breaking this data down, a total of 47% of borrowers increased their loan size, and 59% of those who remortgaged took out a five-year fixed rate product, which was the most popular product length. An estimated 29% of remortgagers’ primary aim when remortgaging was to release equity from their property. The average loan increase post remortgage was £21,339, while the average loan decrease post remortgage was £12,964.

Evaluating this on a regional basis, the average remortgage loan amount in London and the South East was £337,173, while the average for the rest of the UK stood at £197,148, putting remortgage loan amounts 52% higher in London and the South East than the rest of the UK.

As previously mentioned, this growth was likely driven by the volume of mortgage maturities and imminent rise in interest rates. Of course, this rate hike did happen on 16th December and this is likely to result in a raft of remortgage enquiries in the early weeks of 2022.

Looking further ahead, IMLA predicts that the remortgage market will be stronger in 2022, reaching £89 billion, compared to £82 billion in 2021. This is suggested to be a result of lenders prioritising house purchase lending during last year’s stamp duty holiday, with lower predicted house purchase volumes going forward encouraging lenders to focus more heavily on the remortgage market.

I can’t argue too much with this sentiment, although I do expect lenders to not shift their focus too much away from what will remain a strong purchase market. Overall, the lending arena remains highly competitive across the board and Q1 will continue to provide brokers with plenty of opportunities within both the purchase and remortgage markets.