Brokers are forecasting a gloomy year for remortgaging activity and are braced for the possibility of 2013 marking a 16-year low for the sector.
Opinions are divided on why, at a time when fixed rates are either at or approaching record lows, remortgaging activity still remains so subdued.
Figures from the Bank of England are, at first glance, relatively positive on remortgaging activity. The most recent figures for March show there were 30,088 remortgage loans approved – up 2 per cent on the 29,511 loans approved in March 2012.
However, a wider perspective reveals a less encouraging picture. In the first quarter of 2013, remortgage approvals stood at 83,446 – down 6 per cent on the 89,160 loans approved for remortgage in the first quarter of 2012.
Figures from the Council of Mortgage Lenders, published last week , show 2012 had the lowest number of borrowers choosing to refinance since 1997 at 316,000 loans, representing a 15-year low.
LMS chief executive Andy Knee says capital requirements for higher LTV remortgaging is sustaining the number of mortgage prisoners and will help prolong this trend into the second half of 2014.
He says: “The CML is painting a gloomy picture about remortgaging and certainly the first half of this year will be lower, in terms of completions, than the first half of 2012. We might see a 16-year low for 2013.
“Lenders are required to put six times as much capital into a 95 per cent mortgage as a 60 per cent product. The battleground for remortgaging is really in the 60 per cent LTV and below space. Mortgage prisoners would like to remortgage and take advantage of the better deals but are not able to do so at the moment, which is holding back the demand.”
Knee says the introduction of the Help to Buy mortgage indemnity guarantee scheme will go some way towards addressing these capital issues, since the Government will underwrite a portion of the risk associated with higher loans, but the effects will not be felt until it is introduced in 2014.
Legal and General Mortgage Club managing director Ben Thompson agrees that while the scheme will help the situation, improvement will not be immediate.rem
He says: “My gut feel is that the remortgage market has probably bottomed and may well bounce along the bottom for quite some time.”
Falling fixed rates should have sparked more remortgaging activity but instead, the impression is that borrowers are – perhaps unwisely – waiting to see if rates improve further, holding back business volumes.
SPF Private Clients chief executive Mark Harris says borrowers who are adopting this tactic are at risk of losing out.
He says: “Borrowers should look at rates in an historical context – these are the cheapest rates ever seen and even if they do edge a little lower, snapping one up now might be a good move. Do not assume they will be around for ever.”
John Charcol senior technical director Ray Boulger says these borrowers are taking a gamble with this approach and may end up paying more as a consequence.
He says: “If you wait another three or six months in the hope of getting a rate which is 20 basis points cheaper, and all that time you are paying 1.5 per cent more, you are not going to make it up. It is a huge gamble.”