LMS estimates that the number of remortgage loans also rose by 7% to 25,325 in July. This figure is, however, down by 14% from this time last year, when there were 29,600 remortgage loans recorded – an effect of MMR and tighter regulations across the market.
The average remortgage loan has fallen to £159,582 – a 2% decrease from last month but still 9% higher than July 2013. The remortgage market share now equates to 21% of the total market, the same as last month but down from 25% in June last year, after gross mortgage lending growth outpaced the remortgage market in July.
According to CML data the average mortgage interest rate increased to 3.15 in June, the fifth consecutive rise, as rates begin creeping up as a consequence of MMR and ahead of a base rate rise. Although the current rate remains a long way short of the rates witnessed in the start of the recession, for example, 5.89% in October 2008, the last six months indicate a gradual trend and continued rises may impact affordability levels for homeowners.
Based on this mortgage rate, annual remortgage repayments now account for over a fifth (21.7%) of household income, slightly higher than last month when they accounted for 20.7%. This remains marginally lower than the typical rate for a new purchase mortgage, which has an average rate of currently 21.9%.
However, the average monthly household income for all new mortgages rose by 2.3% in June, to an average income of £43,938 according to the CML. June’s average income is also 2.5% higher than this time last year as wages finally start to see some growth.
Andy Knee, chief Executive of LMS, said: “With two members of the Bank of England’s MPC already staking a claim for an immediate base rate rise, an increase looms ever closer, having an impact on aspiring and existing homeowners. However, customers shouldn’t panic as any change is likely to be gradual allowing customers plenty of time to explore the best rates available to them.
“Affordability remains key to the property market. With the average amount of equity released through remortgaging falling by 4% from last month, it is apparent that more stringent rules and less competitive rates are taking their toll. That said, it is still possible for customers to get a good deal if they hunt around – with 60% of those who remortgaged doing so to lower their mortgage rate.
“We expect uncertainty surrounding a base rate rise will also encourage a surge in remortgage activity, especially later on in the year as more customers look to fix rates while they can, and before rates creep up any further.
“Latest CML income figures are good news for buyers, showing that the average income in June increased by 2% since last month after a period of fluctuation and decline. However, 2% does little to keep up with house price rises across most of the country and slow wage growth will still prove a challenge to many hoping to take a step onto or move up the property ladder.”
