"Over the past few years, those who wanted (and were able) to remortgage have been able to, but we could hardly say that this part of the market has got anywhere close to breaking the dominance of purchase activity."
There are of course many reasons for this, for example, many borrowers post-Credit Crunch found themselves on incredibly competitive deals that they did not wish to lose by remortgaging; others have fallen foul of the tighter affordability criteria introduced by the Mortgage Market Review, while some remain as ‘mortgage prisoners’ trapped by all manner of circumstances both financial, economical, regulatory and political. Despite them wanting to remortgage to a better, more competitive rate, the opportunity is simply not there.
Over the past few years, those who wanted (and were able) to remortgage have been able to, but we could hardly say that this part of the market has got anywhere close to breaking the dominance of purchase activity. Indeed, the market trend has not been towards greater remortgaging, despite the ultra-competitive rates we have witnessed – based in no small part on the very low Bank Base Rate.
Now however, fuelled by a further cut to BBR, we are starting to see something of a resurgence in remortgaging, albeit one that has to be viewed against a rather dramatic drop back in purchase activity. This house purchase decline has been the result of many events and issues, not least the uncertainty generated by the EU referendum, and measures such as the increase in stamp duty for additional homes.
So, in a subdued marketplace we shouldn’t get too carried away that remortgaging is somehow improving alongside a strong purchase market – that’s simply not the case. However, interest in remortgaging has undoubtedly grown – especially since the MPC acted in August – and the latest statistics seem to bear this out. For example, research from LMS suggests that in August there were more remortgage transactions than at any time since July 2009. Remortgage loans hit 36,195 – up 8% on July and a significant 45% increase year-on-year.
Given that it will take time for the full impact of the BBR cut to feed through, and we are talking about the summer period, then one might expect that demand for remortgaging will continue to grow. However, a large number of borrowers are still faced with the same issues, regardless of an increasingly competitive range of remortgage products being available. Those mortgage prisoners who want to capital raise but can’t access the products they need – although it has to be said that one suspects lenders may be interested in loosening criteria if they are not particularly close to hitting yearly lending targets.
And then there’s the borrower demographic who may still feel that it’s not worth their while remortgaging if they are already on a great low rate tracker or interest-only deal. The LMS statistics also revealed that, for those remortgaging, the average time they’d held their previous product for was just over four and a half years. If we consider house price rises in that time, it may well be likely they are sitting on equity they would like to access, but again don’t want to lose their current product. It’s at this point that advisers should hear a bell ringing which tells them these clients could be ideally suited for a second-charge mortgage.
Second-charges offer these types of clients, who want to release equity but don’t want to fully remortgage away from their current rate, the ability to do just that. Now, we fully acknowledge that in the past, advisers may have been uncertain about a second-charge recommendation because of the fees involved, their level, their addition to the loan, and the large monthly payments that would often arise from them.
However, with second-charges now under MCOB, there is the opportunity to reduce set-up costs on second charges. Our move to a standard application fee of £295 (payable just before we start the packaging work) is much more in keeping with the traditional remortgage market, and should ensure first-charge advisers can see a level-playing field comparison of both firsts and seconds, in which the latter products do not seem to be from a different financial world altogether.
There is a big positive here for advisers - as interest in remortgaging grows, even those who may not be suitable for a standard remo will have other options to consider, particularly second-charges. No-one would deny that holding onto a highly competitive deal can be the right move for the client, but if they are looking to raise capital then they are certainly able to do this, and still access that equity through a second-charge. As long as advisers are in the know, or using a master broker that can get the right product recommendation (and packaging) for their client – or both - then they are certainly adding another significant string to their bow.
