Special Features

An opportunity-laden remortgage market for intermediaries: Barclays Quarterly Review

Craig Calder | Barclays
|
10th May 2021
Craig Calder Barclays
"I’ve written before about the need for the industry to work even harder to better educate and inform consumers on the potential benefits attached to remortgaging"

As per my Q3 and Q4 remortgage reviews, activity in Q1 2021 was largely expected to play second fiddle to a purchase market which continued to fire on all cylinders in the lead up to what was – at the time – an impending stamp duty deadline. This was highlighted in Q4 data from UK Finance, which showed that house purchase lending grew to the highest quarterly levels since 2007, led by December levels which were 31% higher than recorded in 2019. The trade body also outlined that mortgage lending was lower in 2020 than in 2019 as a result of the decline in Q2 lending, but higher than expected due to the high Q4 activity.

Focusing on the remortgage market, the data showed that remortgages with equity withdrawn became more popular in Q4 2020, with the average value of money withdrawn increasing. This was said to be driven by use of deposits for second homes, new buy-to-let properties or to assist with deposits for children buying their first properties.

Staying on the topic of releasing equity, figures from LMS indicated that - when remortgaging in February - 30% of remortgagers’ primary aim was to release equity from their property. The research found that 52% of those who remortgaged took out a five-year fixed rate product in February, while 46% increased their loan size. The average monthly payment decrease for those who remortgaged was £217. When reflecting on these figures, Nick Chadbourne, CEO of LMS said, “February was a tale of two halves for the mortgage market. On the one hand, speculation over whether the Stamp Duty Land Tax holiday deadline would be extended was at a crescendo, fuelling an uneasy mortgage market as sellers and buyers considered delaying purchases while waiting for clarity. On the other hand, lenders regaining confidence paired with a raft of ERC expiries contributed to a healthy remo market, pushing instructions up for the second consecutive month.”

I’ve recited this particular passage as it perfectly sums up our experience as a lender over the first two months of 2021 and it set up a fascinating, opportunity-laden end of quarter for the intermediary market. A fact which was summed up in a report from Legal & General Mortgage Club which showed that an estimated 32% of borrowers who have been negatively financially impacted by Covid-19 intend to stay on their lender’s standard variable rate. A move which could impact over 700,000 borrowers who will reach the end of their two and five-year residential fixed-rate mortgages in 2021. According to L&G, moving onto a lender’s SVR could increase annual mortgage repayments by over £2,500. Among those who do not plan to revert to their lender’s SVR, 52% intend to stick with their current lender, with 37% doing so because they believe this will be the easiest way to secure a new deal.

The challenges facing homeowners were highlighted in research from comparethemarket which suggested that nearly one in five UK homeowners (19%) have been unable to remortgage their home since the pandemic started and could now face higher monthly mortgage repayments as a result. More than two-fifths (41%) of households unable to remortgage said their application was rejected because they had lost their jobs, and one-third (32%) said it was because they had been furloughed. A quarter (26%) of homeowners thought their application was rejected because of a salary cut.

I’ve written before about the need for the industry to work even harder to better educate and inform consumers on the potential benefits attached to remortgaging and it’s clear from this raft of data that this remains the case. In addition, lenders need to be constantly assessing product ranges and criteria to better support homeowners and their changing circumstances.

This isn’t always easy. Many variables have arisen from the pandemic and its vital for lenders to remain within responsible lending boundaries and have the procedures in place to deal with certain lending scenarios. However, we are seeing rising levels of product availability, even across higher LTV bands, and competition remains strong with some innovative products emerging. This is where the mortgage advice process really does come into its own, in terms of sourcing appropriate and money saving remortgage options for a variety of homeowners. And long may this continue.

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