- The average number of loans up 27.8 from 26.8 the previous quarter.
- Brokers forecast 0.9% increase in the number of mortgages arranged in the first quarter of 2005.
- Remortgages represent 56% of total home loans, up from 50% 12 months ago.
- The proportion of borrowers taking out a mortgage for home improvement or to buy a second property is down from 25% to 21% and from 18% to 17%, respectively.
- Fixed rate mortgages down from 36% to 32% of all cases introduced by financial advisers whilst base rate tracker products rose from 32% to 37% of mortgages. Discount rate cases rose from 28% to 29% of all mortgages.
- Proportion of brokers’ business submitted through multi-lender organisations, has fallen to 38%.
Levels of mortgage business up
The average number of loans set up rose to 27.8, up from 26.8 the previous quarter, reversing the previous trend whereby loan volumes had fallen gradually over the previous 3 quarters.
Comments John Heron, Paragon Mortgages’ managing director: “The number of mortgages arranged by brokers peaked a year ago, at more than 32 loans per office in the final quarter of 2003: at that time, high levels of home buying activity combined with a busy remortgaging market to push business to record levels. Since then, advisers have reported a gradual cooling off from these highs. This quarter sees the first rise, after 3 quarters of dwindling volumes. However, even last quarter’s ‘trough’ of 27 mortgages per office was substantially higher than the average of less than 24 reported in the second half of the 1990s.”
Positive outlook for the future
Looking forward, brokers expect to see modest growth in business levels over the next quarter, forecasting a 0.9% increase in the number of mortgages arranged in the first quarter of 2005, which would represent an annualised growth rate of approaching 4%.
“While brokers still expect to see increased business volumes, they are trimming their growth expectations in recognition of slower conditions in the mortgage market generally,” continues John Heron. “Their growth projections are lower than they have been for some time, but this merely reflects their realism regarding the current environment.”
Remortgages are key
Remortgages remain by far the most important category of home loan. They now represent 56% of the total, up from just over 50% 12 months ago, while other types of mortgage (for clients buying properties) have declined slightly over the same period.
Reducing or controlling outgoings remains by far the most important reason for arranging a mortgage, according to the brokers, and this has risen significantly this quarter.
“In fact, the last two quarters have seen a surge in the proportion of borrowers taking out a loan to manage their outgoings. This has risen from 38% to 40% last quarter and 44% now,” observes John Heron. “I interpret this as a sign that borrowers are typically adopting a cautious approach, wanting to keep a tight rein on their finances and taking advantage of the low interest rates that were available in the market in 2004.”
There has been a decline in the proportion of borrowers taking out a mortgage for home improvement or to buy a second property, from 25% to 21% and from 18% to 17%, respectively.
Base rate trackers are favourite
Indeed, fixed rate mortgages remain a popular choice of loan, although they have seen a decline this quarter (from 36% to 32%) and have now been overtaken in popularity by base rate trackers, which have risen sharply from 32% to 37%.
John Heron explains: “Fixed rate comprises almost a third of home loans, but that means that more than two-thirds are variable. The majority of borrowers clearly prefer the greater flexibility of a variable rate loan, and don’t think that interest rates are set to rise much more, if at all.”
After base rate trackers which took up 37% of cases, most variable-rate borrowers chose discount mortgages (with or without cashback), which accounted for 29% of cases, up from 28% last quarter.
Repayment – capital & interest is declining, but still most popular
In terms of repayment method, the majority of borrowers elect for a capital and interest loan, accounting for 63%, while part capital and interest/part endowment represented a further 12%. There has been a gradual fall in the proportion of mortgages repaid in capital and interest, since hitting a peak of over 70% 3 years ago.
At the same time, there has been a growth in popularity of interest only mortgages, which have increased from less than 10% of cases to almost 20% of cases over the same 3 year period.
John Heron comments: “Given the concerns expressed over endowment policies, one can only hope that the growth in borrowers’ decisions to take on interest only mortgages is matched by their ability to pay at the end of the term.”
The survey also reveals some interesting trends regarding brokers’ business.
In particular, there has been a significant fall in the proportion of brokers’ business submitted through multi-lender organisations, which has fallen to 38% - the lowest level since brokers were first asked this question more than 3 years ago, and contrasting with a peak of over 44% last June.
Brokers also report a rise in the average commission earned in respect of each mortgage introduced. This rose by £17 or 5%, from £332 to £349. Not surprisingly, the UK’s largest mortgage lenders were the principal source of these commissions, with Halifax, Abbey National and Nationwide topping the table.
“Financial advisers and brokers remain an important source of mortgage business for the lenders, and they also help borrowers find exactly the right loan to meet their personal needs. While business has been somewhat volatile over the past year, they are still seeing healthy business levels and, indeed, are enjoying rising commissions on the business they introduce,” concludes John Heron.
