Brokers have criticised lenders for failing to help existing borrowers switch to a better deal after year-on-year remortgage approvals fell in June.
The Bank of England last week released data showing the first uptick in mortgage approvals since January, with 108,857 approvals in June representing an 8 per cent rise from 100,451 in May. Industry commentators called it the first sign the Mortgage Market Review has finally “bedded in”.
But despite a return to growth that has seen purchase approvals rise 14 per cent from June 2013, remortgage approvals stand 2 per cent lower than a year earlier.
Brokers say the overall dip in approvals during the first half of 2014 reflects changes to lenders’ underwriting policies and internal systems.
Blue Strawberry Mortgages principal Ross Robinson says: “I don’t think the downturn in applications was entirely surprising. There were a lot of changes that lenders had to prepare for and as a result one would reasonably expect things to slow down.
“The Bank figures last week seemed to show that has now eased off.”
With Bank governor Mark Carney hinting at an imminent rise in the base rate, brokers say borrowers should review their mortgages and fix their payments before the increase.
London & Country associate director of communications David Hollingworth says: “Some people may be on a very low rate already and therefore unable to get a cheaper deal. Other people may have very little equity in their property so rates elsewhere may not be as sharp as what they are already paying.
“However, if base rate is going to go up, it is imperative for borrowers to fix their rates now and avoid unexpected shocks.”
So with conditions seemingly in place for a remortgage boom, why have approvals failed to pick up?
Coreco director Andrew Montlake says: “Remortgages will start to rise towards the end of the year as we get ever closer to an interest rate increase. There is still a lot of negative talk around how hard it is to get a mortgage when that is perhaps not quite the case.
“We are in the summer months now, which has an effect – people naturally start looking at their mortgages at the end of the year. Traditionally, a lot more mortgage activity occurs towards the autumn and winter months.”
Hollingworth says interest-only borrowers who wish to remortgage will find it much harder as a result of tighter regulations.
He says: “Interest-only could be playing a factor in this. Someone may have been thinking about switching but found that if they do, they have to switch to repayment because they either don’t have a repayment vehicle or the one they do have is insufficient.”
Robinson says: “I expect an upturn over the next couple of months. But given the information coming out about an impending rate increase and the fact that lenders are offering some great deals at the moment, I would have expected to see more completions already.”
Role of brokers
Robinson adds brokers should be urging clients to fix rates “as soon as possible”.
He says: “A big part of the problem is borrowers often wait to see things happen before they take action. It is seen as a hassle to rearrange a mortgage.
“Nothing has actually changed and it isn’t the first time we’ve heard noises about a possible rate increase.
“Brokers should be keeping an eye on their clients’ affairs and making sure they nudge them towards the sensible option – fixing their rates as soon as possible.
“Sadly, I don’t think enough intermediaries take the proactive approach and do this.”
Montlake agrees the mortgage industry must do more to make borrowers aware of the shock they may face when the Bank eventually increases the base rate.
He says: “People will be thinking rates haven’t moved in so long they’ll just wait until something moves. Our role has to be to get the message out that those people who think they will struggle once base rate goes up need to fix their rates as soon as possible.”
In May, the FCA hit out at lenders for failing to use transitional rules that waive affordability checks for existing borrowers, allowing them to switch mortgages when their fixed period ends.
All three brokers say the continued lag in remortgages proves that little has changed since the FCA’s criticisms.
Hollingworth says: “Lenders are continuing to ignore the transitional rules that the FCA put in place to make sure people could switch to a better deal. In some cases, even switching product with your existing lender can be tough for interest-only borrowers.
“The rules were set up to avoid having large numbers of mortgage prisoners and the fact they are not being employed means we run the risk of exactly that happening.”
Montlake adds: “Lenders are basically ignoring the transitional rules for all but existing customers. Building societies and smaller lenders seem to be looking after their customers a little better but others still need to work on how they address this situation.
“My worry is lenders could be storing up a problem for later down the line.”
Robinson agrees the transitional rules are not being used properly.
He says: “If the desired outcome was to provide a solution for the thousands of mortgage prisoners, it has not been achieved. There are too many borrowers who find they cannot switch to a cheaper deal and that cannot be right.
“Lenders need to manage their risk effectively but not prohibitively and make sure people are in the best position.”