CML news & views

There was a surprising monthly decline in our recent remortgaging figures. There were 71,000 loans for remortgaging in May, down 14% from April and 23% from May 2007. And the value of remortgaging declined by 13% in May to £9.6 billion.

This was surprising as we expect remortgaging activity to remain relatively buoyant this year, supported by an exodus of 1.4 million borrowers from existing fixed-rate mortgage deals in 2008. In a softening housing market lenders may also have a greater appetite for remortgaging as customers have already built up equity in their property and have a proven track record of meeting payments. Our recent forecast predicted that the number of loans for remortgaging in 2008 would be about 2% higher than in 2007.

But while we expect a wave of borrowers to exit term fixed-rate deals this year it will not be a steady flow; there will be variations in the number of borrowers exiting in any given month.

And when a borrower reaches the end of their fixed-rate period, there is no imperative for them to remortgage immediately. When the fixed-rate term ends, the loan will usually simply revert to the lender’s standard variable rate or a tracker rate, at which point the borrower has a choice to remain on that default rate, or to remortgage.

In these uncertain market conditions – with mortgage products in constant state of flux – some borrowers may be adopting a wait-and-see approach before locking into another deal.

Others may be finding it difficult to re-finance, as the squeeze on funding has led to a tightening of lending criteria and an increase in costs. There are fewer remortgaging options available and it may be less attractive than it has been in the past for some borrowers.

However, it is worth bearing in mind that our remortgaging figures do not capture borrowers who re-finance with their existing lender, or buy-to-let remortgaging.

So essentially what our figures showed is that the number of house-purchase borrowers who remortgaged with another lender dropped sharply from April to May. But it is unwise to read too much into one month’s data. Remortgaging is still performing better than lending for house purchase compared to 2007- a year-on-year decline of 23% for remortgaging and 44% for house purchase lending.

Lending for house purchase increased slightly from April to May, by 4% in volume to 52,700, and by 2% in value to £7.9 billion. But both were 44% lower than May last year.  

The number of loans to first-time buyers rose by 4% from April to 19,200, but was 41% lower than May last year. Home movers took out 33,500 loans, up 4% from April, and down 46% from May last year. Gross lending declined to £24.5 billion, down 6% from April and 22% from May last year. This is the seventh consecutive month that gross lending has been lower than a year before. 

The growing popularity of fixed-rate mortgages, despite the relatively high rates, suggests that many borrowers are prioritising certainty in their monthly payments. 

Lending levels continue to be lower than last year and any recovery is still some way away, with little sign of the Bank of England’s special liquidity scheme increasing the flow of funds to the industry or lowering the cost of funds, as hoped. We look forward to an early, positive report from the Crosby review on how the market should address these issues with the support of the tripartite authorities.