"Throughout the year, lenders and intermediaries continued to realise the benefits of being proactive in the remortgage space and this will continue into 2021."
In my Q3 review, it was evident that the remortgage sector was largely operating in the shadow of a purchase market where activity levels continued to skyrocket.
Although this should take nothing away from its actual performance. It rebounded strongly in Q3 and this was reflected in data from LMS which outlined that the remortgage market recorded its most positive broker rating in five years due to strong product transfer activity.
LMS’s latest Remortgage Healthcheck Index - in partnership with the Centre of Economics and Business Research (CEBR) - showed that brokers gave the sector an overall score of 60.2 for the period, up from a Q2 score of 48.5. The index asks brokers to rate the overall health of the remortgage market with scores between zero and 100. A score of 60 or above suggests positive sentiment for the industry. Additional data suggested that when it came to remortgage approvals during Q3, broker sentiment improved quarterly by 11.5 to a score of 70.9, the highest value on record.
Focusing our attention on Q4, there was little in the offing to suggest that things would change dramatically as the primary focus remained on homebuying and, largely speaking, this proved to be the case. The remortgage market ticked along nicely in the background as many homeowners utilised the expertise of advisers to manage shifting financial circumstances and monthly outgoings amidst the ongoing economic uncertainty.
When it came to loan sizes, the MBT Affordability index reported that the average loan size requested by remortgage customers rose from £183,471 in October to £198,829 in November. When comparing this to other borrowing types, the average loan size requested by homemovers fell month-on-month from £248,950 to £238,000. In addition, the maximum average loan size available to homemovers dropped from £318,571 to £307,440 over the same timeframe. For first-time buyers, the minimum average loan size available to customers in this category fell to £130,333. The index also noted that the average maximum loan available to mortgage borrowers in November was £278,145, while the average minimum loan was just £133,166.
This data offers some great insight into how the market is changing and the vast spread in the loan sizes available from different lenders to customers with a similar set of circumstances. A factor which further highlights the importance of the advice process.
Looking back on 2020 as a whole, we learned many things about ourselves, our businesses and the industry. If we didn’t realise before just how adaptable and resilient the housing and mortgage markets are, then we certainly do now. And I include the remortgage sector within this. Throughout the year, lenders and intermediaries continued to realise the benefits of being proactive in the remortgage space and this will continue into 2021.
Inevitably, Q1 will see a renewed emphasis on helping to expediate the homebuying process - where possible - so homebuyers can benefit from the stamp duty tax saving. However, it was also good to see data highlight the monetary benefits attached to remortgaging and how important education is within this process.
The research from Habito showed that reverting to a big six UK lender’s standard variable rates (SVR) could cost homeowners up to £4,080 in additional interest each year. Despite this, 27% of survey respondents said they were on their lender’s highest possible rate of interest. In addition, 18% said that they did not know whether they were on their lender’s SVR.
Negative connotations were apparent around the word ‘remortgage’ with 17% of respondents equating it to taking on “more debt” or something to be done “out of financial necessity”. A further 6% said that they did not know the meaning of the term, while 8% believed it is a different mortgage taken out on the same home. Furthermore, 11% of respondents reported being frightened about lenders scrutinising their finances given the current economic climate.
In addition, one in ten respondents did not know what an SVR is and a further one in ten believed that moving onto their SVR would help them pay off more of their mortgage balance quicker. Of those that knew they were on their SVR, but have not switched, one in ten said that it was because they did not realise they could get a cheaper deal. Meanwhile, over half (54%) of respondents identified that remortgaging is typically done to switch to a more competitive interest rate to save money on their repayments.
This data provides a stark reminder that we, as an industry, need to work even harder to better educate and inform consumers on the benefits of remortgaging. Not to mention the continued array of available opportunities on offer for the intermediary market, especially in such a competitive lending environment.