Exclusive analysis for Mortgage Solutions undertaken by Countrywide found that extra borrowing to fund home improvements has grown rapidly since June 2013, with more people borrowing more money against their property when remortgaging.
Indeed, the additional value borrowed has more than trebled in value in the last two years alone with more than one in five remortgagees taking out additional capital in the last 12 months.
Countrywide Mortgage Brokerage assessed 143,132 remortgages completed between the summer of 2006 and 2017.
The pattern its data reveals shows the extent to which homeowners are increasingly choosing to add extra borrowing when remortgaging to develop their property.
As might be expected the data reflects the availability of credit following the recession, however the recovery has vastly overtaken the pre-recession level – suggesting other factors are pushing the market past its previous level.
Following the low in the 12 months to summer 2010 when just 6% of remortgage applications included additional borrowing for renovations, this hit 20% over the last 12 months. (Click graphs to expand.)
In 2006 the average increase in borrowing was 25%, this fell to a low of 13% in 2013, but has since soared to 38% over the last year.
All this means that, as far as value is concerned, Countrywide estimates just £500m was added to mortgages in 2011 while the last 12 months saw more than £7.25bn added – more than three times the £2.28bn in 2015.
Remarkably, despite the extra billions being borrowed in the last two years, the typical loan-to-value (LTV) of remortgages held steady at 64% during this period, highlighting the combination of rising house prices and low interest rates.
Indeed, before the financial crisis the average LTV of a remortgage was remarkably similar to current levels at 61% – in contrast it was just 48% in 2009.
Countrywide chief economist Fionnuala Earley told Mortgage Solutions the data suggested there were three key factors at play.
“First is the cost of moving house. While the change to Stamp Duty in 2014 means the bill is less than it would have been under the old regime for most outside of London, it’s still a big chunk of money,” she said.
“Second, with the market still slow there’s a lack of stock to choose from. This combined with more emotional or practical things such as schools, or being close to family means that there’s a bigger incentive to make your own fit by making some improvements.
“Third is uncertainty about what’s ahead. Rather than trade-up and take out a much bigger debt, remortgaging can make use of the equity and keep costs down.
“Credit availability is better now, but people still need to go through affordability tests and if building an extension is cheaper than moving, then a remortgage may be an easier way to achieve a bigger home with limited equity or tightened household finances,” she added.
One in four (24%) remortgagees in the East of England have taken-out additional capital to fund home improvements (the most in the country) and at an average extra of more than £100,000 are borrowing the second highest.
Perhaps unsurprisingly, London borrowers accessed the most capital (£135,000), while those in Wales and Scotland were the least like to borrow more and borrowed smaller amounts when doing so. (Click table below to expand.)
However, the trend is worrying Your Mortgage Decisions director Dominik Lipnicki, who raised concerns about future affordability.
“In my experience when you get an increase in property prices and not in wages its very tempting to use that capital,” he said.
“There’s nothing wrong with putting in an extension or paying off high rate debt, but we as advisers need to be sure its affordable and planned out. We have all been reading about consumer debt and I don’t think society has learned a lot since the crash.
“Secured borrowing is safer than it’s ever been but we and clients have to be sure its affordable in the future and we have to be sure that we’re not just fixing one thing and leaving another situation vulnerable,” he added.