Remortgage
Remortgaging stalemate
A remortgage stalemate has arisen but where does this leave the broker? Yuan Phoon takes a closer look
The remortgage market was the bread and butter business for mortgage brokers before the financial crisis. It accounted for the lion’s share of their income and the impact on consumer appetite to remortgage once the credit crunch hit, has been a bitter pill for many brokers to swallow. The start of 2011 had many holding
their breath for a remortgage revival as the prospect of an interest rate rise drove up remortgage levels to pre-boom levels and to their highest levels in two years. Indeed in February, data from the Council of Mortgage Lenders revealed that gross mortgage lending was underpinned by stronger remortgaging activity. The combination of a significant rise
in VAT, depressed economic growth forecasts, the impact of declining consumer expectations and confidence essentially waived off any chance of an interest rate rise take off and spelled trouble for the remortgaging forecast. Tony Ward, chief executive at
Homefunding, explains: “Brokers were initially over optimistic about the amount of remortgaging we would be seeing this year because they had applied the old rules e.g. where customers come off rate incentive products they tended to move elsewhere and repeat the discount rate incentive cycle again and probably take some equity out on the way through.” Those days are clearly over or at the very least, have been put on an indefinite
hold for as long as the Bank remains on its 0.5% rate marathon, as borrowers have become comfortable with sitting on their very low SVRs. Sally Laker, managing director at
Mortgage Intelligence, says: “I wouldn’t be surprised if interest rates stay as they are for the rest of the year. That won’t help the remortgage market as homeowners will be tempted to stay put on standard variable rate and I can’t really blame them for that. Some were enticed into taking out fixed-rate deals earlier in the year in anticipation of the rate hike that never happened.”
BoRRoweRs digging in We’re more than half way through what has been a challenging year. What now? “The increased proportion of remort-
gaging occurred because of the expectations of a base rate rise in the first quarter. Now that the prospect of that happening soon has diminished, remortgaging is unlikely to increase until it begins to surface once more,” says the CML. But why? Research from consumer group Which?
conducted on their members revealed that 38% of borrowers were sitting on SVR, however figures released by Moneyfacts revealed that rates for mortgage products were at an all-time low. Inevitably the base rate will rise. The question which many are asking is: would
46 moRtgage intRoduceR AUGUST 2011
it not be better for borrowers to take out a record breaking deal now and protect themselves from future interest rate rises, than to roll the dice and hope to see an interest rate rise before the banks do? David Finlay, intermediary managing
director at Barclays, weighed in his thoughts on when borrowers should pull the trigger on remortgaging. “It’s important that borrowers act now to
help cut their monthly mortgage payments with a view to building a financial cushion so they are absolutely ready for when base rates do start to move upwards,” he says. “Waiting until an actual rise in interest
rates may still be the trigger for many mortgage holders but we know that by the time this happens the best rates will have already risen. It is important to emphasise that it is these customers that would benefit from remortgaging to a better rate now, saving them money in readiness for predicted base rate rises.” The CML offered one explanation for
the existence of the SVR pool. “A lot of people sitting on their SVRs
right now got into the housing market on high LTVs. With the drop in house prices, many may not have the equity to take advantage of cheaper deals even if they wished to,” it says. If this is so, do lenders actually have an
appetite to get borrowers to remortgage and what are they doing to achieve this? If they’re not motivated does this mean
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