Duncan Pownall, mortgage development manager for Bradford & Bingley, commented: “March’s lending figures show an encouraging increase in gross lending to £20.1billion – up 13% from February - indicating the beginning of a seasonal uplift in activity. This is, however, 19% lower than the same time last year, confirming widespread opinion that the market has quietened down to more realistic levels.
“Remortgaging has experienced a slight dip in March as a proportion of total lending – falling from 49% in February to 46%. This was in part due to a rise in further advances. One reason for this increase could be that borrowers tied into deals would have to pay early redemption charges if they took out a new, higher loan so it is likely many of these would have opted instead to take out an advance with their existing lender.
“In the coming months, however, we would expect to see a marked increase in remortgaging as hundreds of thousands of borrowers come to the end of their cheap two-year fixed rates taken out in 2003. Many of these borrowers face the payment shock of jumping from rates as low as 3.3% to nearly 7%. While rates on all products have risen, following five interest rate rises, remortgaging to a market-leading deal can help cushion the impact.”
“A marginal increase in the numbers of first time buyers is certainly a positive sign that buyers are starting to return to the market. They now represent 32% of home purchasers, a 3% rise on the previous month. This may indicate that as stable house price growth comes more into line with earnings ratios and there is an increase in the choice of property available, first time buyers feel more confident about stepping onto the ladder. Throughout the coming months the proportion of first timers may edge up further as the effect of doubling the stamp duty land tax threshold helps buyers in certain regions. However, we don’t expect to see a substantial rise and certainly we don’t foresee at this stage first time buyer numbers ever returning to their previous highs of 40-45%.”
“Fixed rate borrowing edged up slightly in March – from 39% as a proportion of total lending in February to 40%. This was as a result of the narrowed differential between fixed and discounted rates and the perceived benefit, when the difference is small, of fixing. At the time of application around January / early February a typical 2-year fixed was priced around the 4.80% mark, compared with a 2-year discount of around 4.75%.
“Given price is the key driver influencing borrower behaviour, we could well see the proportion of fixed rate lending drop back slightly in May’s lending figures as the differential between fixed and discounted rates widened in March. Over the last few weeks, however, SWAPs have begun to fall again (currently around 5% for 2-5 year money) and we would expect increasing numbers of lenders to re-price their fixed rates more competitively. Royal Bank of Scotland, Abbey and Nationwide have already lowered their fixed rates and we would anticipate others following suit. As a result, we would expect to see an increase in the proportion of fixed rate lending in June’s figures.”
“Whilst this quarter has been a quiet one, this is traditionally the case in the first part of the year due to seasonal falls in January and February. We would expect lending figures to become healthier in the second half of the year as the spring surge in activity gains momentum, election fever is over and increasing numbers look to remortgage as they come off cheap two-year fixes.”
