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Categorized | Property

Chart that tells a story — the rush to remortgage

Posted on August 28, 2015

Chart: UK mortage lending

What does this show?

The chart shows the latest data up to July from the British Bankers’ Association on lending for house purchases, remortgaging and other secured lending. It reinforces the picture of a strongly rising mortgage market, with particularly lively activity in the remortgaging segment.

    How fast is the rise?

    Mortgage approvals overall were 15 per cent higher than in July a year ago. Loans for house purchase were up 11 per cent and remortgaging was up by 29 per cent — the highest level for four years.

    The trend was backed by regional data published this week from the Council of Mortgage Lenders (CML). Remortgaging grew across all UK regions: in London it was 13 per cent higher on the month and 12 per cent over a year earlier; in Wales it was 16 per cent up on 2014, while loans to first-time buyers and house purchasers had dropped.

    What’s behind the surge?

    Richard Woolhouse, BBA chief economist, said record low mortgage rates were one reason for the rise in remortgage activity. Ultra low bank rates since 2009 have seen interest rates on fixed rate deals plumb new depths in recent years. Moneyfacts, the comparison site, said average two-year fixed rates are at 2.82 per cent, and rates on five-year deals at 3.29 per cent.

    Some offers are far lower. Chelsea Building Society is offering a two-year tracker mortgage at 0.98 per cent, with a £1,675 fee and minimum 35 per cent deposit. HSBC has a two-year discounted mortgage at 0.99 per cent, with a £1,499 fee on a deposit of at least 40 per cent.

    High street lenders have also been competing on the fees that accompany mortgages and loan-to-value ratios, which have grown steadily since the financial crisis.

    Haven’t rates been low for a year or so?

    Yes — and many in the industry have expressed surprise that remortgaging has not picked up before now, given the range of attractive deals on offer. But borrowers have been recalcitrant: figures from the CML show remortgaging was broadly flat following the financial crisis.

    Explaining this sluggishness, brokers said tighter regulation had been a factor, making it harder for people to pass mortgage affordability tests applied by lenders. Borrowers were happy to hold back when they saw no imminent prospect of an interest rate rise and lenders continued to trim their fixed rate deals.

    And that’s changed?

    Are you ready for a rate rise?

    It is no longer a question of if, but when.  This autumn will mark the beginning of the end of the low interest rate era. Soon – potentially as early as next month – the US Federal Reserve is expected to raise its benchmark lending rate for the first time since 2006.

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    Expectations of an earlier rate rise have been building for some time, with hints in the spring that the Bank of England was ready to consider a rise earlier than the markets had expected. The change in mood prompted some lenders to push up rates, though the picture remains mixed and deals are still highly competitive in historical terms.

    “Some lenders are raising their rates and then lowering them again a few weeks later,” said Aaron Strutt, product director at broker Trinity Financial. “Lending targets play a big part in pricing and if the banks and building societies want to attract more borrowers they tend to keep their rates as low as possible.” One big bank warned the broker it would withdraw its lowest rates a few weeks ago, he added, but they remain available.

    Will the remortgage growth continue?

    The figures published by the CML cover the month before the collapse of share prices in China and the global stock market turmoil that this triggered. If one of the knock-on effects of this volatile period is that central bankers put off raising interest rates until things settle down — as some regulators have already hinted — borrowers may feel less urgency about locking in good rates. In that case, the remortgaging renaissance may turn out to be shortlived.