The Bigger Issue
With remortgaging hitting a 10-year
continue to remain bleak or is there Each month Mortgage Introducer takes a look at the bigger issues. This m
It is no surprise that 2010 has seen the remortgage market fall to record levels of low activity. With Bank base rate at 0.5% since March 2009 and no immediate signs of rates rising it is no wonder consumer apathy bodes ill for a major recovery in remortgaging any time soon. The potential remortgage market is made up of three distinct
silos. Pre-crunch mortgage borrowers with tracker rates. Why would
borrowers want to remortgage when a lender’s pre-crunch tracker margin plus base rate is at an all time low? Unless you are in urgent need of funds the only thing that’s going to motivate this group is a considerable upswing in base rate.
Mortgage prisoners. If you have a self-cert or a sub-prime loan, or you have experienced a few minor blips in the recession there is little prospect of obtaining a new deal as lenders have shunned this group for fear of regulatory attention. Until MMR settles and credit conditions improve this group has nowhere to go. SVR oldies and credit crunch newbies. If you have a seasoned SVR deal or you have a new mortgage that was taken out in the last three years then a remortgage is something to consider if not subject to ERCs. This group are the most sensitive to any upswing in rate changes as lenders can adjust SVRs for any reason. And if history is to anything to go by, rises in SVR will be one step ahead of any rise in base rate. Within this group there could be significant demand with any hint of a rise in base rate – indeed, in recent weeks Obligo believes that rates have bottomed – we are seeing fixed rates sub 3% - and with most lender SVRs at 4% plus there is (finally!) a reason to remortgage if you are 75% LTV or lower. I would also make the point that there are other factors at play that could affect a borrower’s ability to remortgage in the short term. Recent reports of falling house prices could well make the best deals, typically found at low LTVs, out of reach for many remortgage hopefuls and that if house price predictions are correct it is also likely that lending policy could tighten further to take price falls into account.
Chris Gardner, director, Obligo
The mortgage market is face to face with the psychological barrier of a 10-year remortgage low, according to the latest Council of Mortgage Lenders data, and unfortunately the outlook for the sector is bleak for the foreseeable future.We expect the mortgage market to remain fairly subdued over the next few months, particularly with the Spending Review casting a dark shadow over the public sector, however good the coalition government’s intentions for the economy. It will take time for the Spending Review’s impact to be felt by the mortgage market, but there will be a period of treading water when there is little rise in purchase activity, as a likely rise in unemployment takes its toll. The sad truth is there is no ray of sunshine on the horizon in the short to medium term to provide stimulus for the market and that - coupled with the fact that trends are changing and fewer people are now aspiring to home ownership as an ultimate goal - is set to ensure the mortgage market remains flat and benign for the immediate future. Of course, there will always be a percentage of buyers who need to move house to accommodate lifestyle changes, but the market appears to be shifting. The financial regulator is attempting to redefine public expectation of the mortgage market by saying that, essentially, mortgages should be less accessible and 100% mortgages effectively phased out entirely. Lenders, too, are fuelling this sea-change as they are less able to raise finance. As a result, home ownership will remain out of reach for many, particularly with loan to value far more conservative now than it has been for the past two decades. Without a crystal ball, it’s hard to predict when conditions will change. The general consensus among economists is that we are unlikely to see an interest rate rise before this time next year, or even into 2012, unless inflation goes through the roof. The reality is that for the next three to six months, there will be a ‘wait and see’ approach from borrowers and lenders alike. Keeping abreast of economic changes is crucial, particularly for borrowers on variable rates. Interest rates are currently low and look to be staying low for at least another year, but we all know the only way is up, so it’s worth keeping an ear to the ground.
Brian Murphy, head of lending, Mortgage Advice Bureau
Our experts have had their say, now it’s your turn to have yours. Visit
www.mortgageintroducer.com and vote for the expert you think makes most 22 mortgage introducer NOVEMBER 2010
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