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Find an escape route

Barclays intermediary business director David Finlay says the most feasible great escape in the current conditions revolves around the remortgage market and freeing borrowers who are ensnared by their SVR

The phrase the great escape conjures up a host of connotations. From sporting fixtures, where teams or individuals fight back from the brink of defeat to the recent amazing scenes involving the Chilean miners. In whatever scenario, it inevitably amounts to the same thing, which is to end up in a far better situation than may have been deemed possible.

In terms of the intermediary market, we believe the most feasible great escape in the current conditions revolves around the remortgage market and how some borrowers can escape their current SVR. There is evidence that more lenders are coming to the aid of borrowers with better remortgage deals and that intermediaries are starting to see some upturn in the remortgage market.

In recent weeks, the trade press has been awash with news stories regarding the remortgage market. There was a headline recently suggesting that the remort-gage market is “not dead”.

It is fair to say that the remortgage market certainly is not what it was in years gone by but then again this is also reflected in practically all sectors of the mortgage market.

According to the latest figures from the Council of Mortgage Lenders, just a quarter of all new homeloans in August were remort-gages, the lowest proportion in 10 years. The trade body suggests that around 25,000 remortgage loans were advanced by lenders in August worth an estimated £3bn. The number of loans was down by 13 per cent and the value down 14 per cent from July, a drop of 19 per cent compared with the year before. There were 51,600 house purchase loans in August 2010, a fall of 8 per cent compared to July. In contrast against last year, purchase loans saw an increase of 3 per cent in volume and 12 per cent by value from August 2009, showing that lenders are still more active this year than last.

’More lenders are coming to the aid of borrowers with better remortgage deals and intermediaries are starting to see an upturn in the remortgage market’

We have also recently seen even more suggestions that the remortgage market is getting back on more of an even footing and potentially on the verge of a “major churn”.

In its recent Mortgage Index, John Charcol states that the number of remortgages jumped by 35 per cent in September as mortgage purchases fell by 20 per cent, suggesting that remortgages have made a dramatic return over the last month and now account for more business than purchases.

A report from pricing specialist Simon Kutcher & Partners says that the UK mortgage market is on the verge of a major churn, driven by a hike in interest rates, combined with customers who purchased remortgage products early in the credit crisis coming to the end of deals. The report points to the fact that, between the period September 2007 and January 2009, there were 945,155 products sold for remortgaging compared with 545,741 products for new purchases.

With typical lock-in periods and discount rates lasting two to three years, the report surmises that there will be a number of customers coming back on to the market in search of a good deal, consisting mostly of those who remortgaged in the first year of the credit crisis – too early to benefit from the subsequent slashing of interest rates. This raises the questions of whether homeowners are aware there are potentially better deals available, can get access to them or if they are getting the right amount of advice with regards to whether to stick or twist on their current SVR.

There are many factors to take into consideration when looking at the remortgage market and lending criteria – an individual’s financial situation, interest rates and house prices all remain at the forefront of any potential shifts in activity.

It may well be time for lenders and advisers to help “liberate” borrowers from their SVR sooner rather than later. Because of continued funding issues and highprofile media coverage concerning problems regarding refinancing, many consumers appear trapped on their lender’s SVR.

Of course, a proportion of borrowers are benefiting from sitting on a low SVR but certainly not as many as they might think.

The news that the base rate has been kept on hold for the 19th month in a row is no real surprise to anyone. However, the longer it remains at its record low, the longer the conundrum facing borrowers currently sitting on their SVR becomes.

This is especially apparent for the many homeowners who are hovering around the key 60-75 per cent LTV rate levels which are currently attracting some very attractive remortgaging options. At Woolwich, we have done some calculations and have built an eye-catching remortgage package labelled The Great Escape which we believe could benefit somewhere in the region of 700,000 people who either feel ensnared or believe they are better off on their current lender’s SVR levels.

It is become increasingly evident that in challenging market conditions interm-ediaries should be engaging with clients across all areas of the market. And if the situation is right for the individual client, it is fair to say that they should be making a concerted effort to encour-age borrowers to make the most of these attractive remortgaging options that are currently available.

It is inevitable that should house prices show a significant downturn or interest rates increase – as they are bound to do some time – then the preferential rates previously on offer may no longer be available.

Markets will have already factored this rise into swap rates some time previously and this means that those borrowers who may be looking towards remortgaging after any interest rate rise could well have left it too late and missed out on the better deals.

To add another layer of confusion onto when exactly is the best time to switch, there is evidence that the market will continue to improve and even more good value deals, whether trackers or fixed rates, will become available both for the low loan to value “wait and see” borrowers and increas-ingly for higher loan to value borrowers who currently have limited access to competitive deals.

But whatever the future holds, it will be hard-working intermediaries offering good holistic advice that work their client databases fully to reconnect with past clients who will really benefit from the current remortgage market and emerge with healthy retention and referral levels for the future.

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