Remortgage flurry begins in third quarter
- Big lenders embroiled in "rate war" - fixed rates more popular than ever
Commenting on the mortgage market, Duncan Pownall, mortgage development manager at Bradford & Bingley, said:
"After a slow start to the quarter gross mortgage lending rose in August to an estimated £27.5bn – one of the highest figures on record. All types of lending increased, although the most marked was remortgaging as thousands of borrowers came off the cheap two-year fixed rates of 2003. We also saw a quarter point cut in base rate in August in a bid to revitalise the economy and the flagging UK high street. Many lenders had already factored this reduction into their current deals though, so the change had little effect on the products offered. With the MPC facing a diverse economic picture, it is set to be an interesting time over the next three months."
Remortgaging finally kicks off but level of borrower apathy remains
"Despite many borrowers coming off the cheap fixed rates of 2003 lending figures for the first half of the year failed to demonstrate any significant boost in remortgaging. Encouragingly though, CML figures for August revealed an increase of 15% in remortgaging to £11.7bn – the highest level since October 2003.While this uplift was largely expected there remains a chasm between the number of borrowers moving ontostandardvariable rate (SVR) and the number remortgaging, indicatingperhapsacombination of lender retention and more significantly borrower apathy.
"Recent Bradford & Bingley research* reveals that the current remortgage trigger point is £93, representing the monthly saving needed before a borrower would consider remortgaging. Bearing in mind the average UK residential loan is approximately £76,000, according to the CML, this £93 equates to a rise in interest rates of 1.45%. Given the hike in rate from the cheap fixes of 2003 to some of today’s SVRs is around 3%, then it illustrates just how important it is for borrowers to remortgage onto a more competitive deal and save themselves potentially thousands of pounds a year."
Lenders embroiled in "rate war" helping make fixes more popular than ever
"For much of the summer the big lenders, principally Halifax, Nationwide and Alliance & Leicester, were embroiled in a ‘rate war’ reducing their fixed rates in a desperate bid to attract and retain custom. Deals at sub 4.3% were offered as loss makers in a bid to gain precious market share. This has certainly worked as the latest figures show fixed rate popularity is at its highest level since CML records began - 54% of borrowers plumping for the security they offer. Although many borrowers on tracker products are benefiting from the recent reduction in base rate, the majority of lenders had already priced this quarter point cut into their selection of fixed products making them equally competitive.
"SWAPs have fluctuated over the past three months with 2-year money being priced at between 4.4% and 4.6%, however, this has not been a reliable indicator as to how lenders have been pricing their products. Most fixed rate deals have held fairly firm during the period. I expect that Halifax and Nationwide will hold their rates unchanged for some time, however, as soon as one lender reprices upwards, the other is sure to follow suite."
Housing market continues to head for ‘soft landing’
"Reports by RICs and the CML demonstrate that there has been a marginal uplift in activity and confidence, with lending for house purchase up 6% in August to £12.5bn.Recent data also suggests property prices are continuing to stabilise - Halifax reports annual growth at 2.5% and Nationwide’s growth rate for the twelve months to the end of September is 1.8%. Halifax also reports that the gap between earnings growth and house price inflation has narrowed, which would signify that house price growth is slowing to a more affordable and sustainable rate. Despite this, however, first time buyers are still struggling to step onto the property ladder, with the number of first timers still hovering around the 30% mark, according to CML figures."
Looking ahead to the close of 2005
"We would expect to see high levels of remortgaging, especially at the beginning of the fourth quarter, as borrowers coming off the last of the cheap 2003 fixes look to avoid facing a big hike in their monthly payments.There may also be a seasonal increase in home purchasing, as buyers rush to get into a new home before Christmas. Looking at the economy, the high street holds its breath, waiting to see if consumer spending increases in the run up to Christmas, a crucial time for retailers and a key indicator of public confidence. A decision on base rate may be swayed by how consumers react during the festive season."
