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Lenders’ reluctance to pass on savings dampens remortgage outlook

  • 18/12/2019
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Lenders’ reluctance to pass on savings dampens remortgage outlook
The outlook for remortgages has been dampened by lenders’ reluctance to pass on cost savings to customers, the LMS quarterly Remortgage Healthcheck Index has shown.


The overall remortgage market index rose by 0.9 points to 50.2 in Q3 compared to Q2, indicating a neutral outlook. 

The gain was helped by the score for remortgage approvals, which rose 5.5 points to 48.1.

However, the score for remortgage borrowing costs fell back by two points to 44.6. The category measures the rate of change of mortgage interest rates and the spread between lenders’ rates and their own costs.

The spread between the average mortgage fixed rate and lenders’ costs expanded to 1.2 percentage points as lender costs fell faster than interest rates. But lenders failed to pass on the savings to customers, causing the category score to fall.

“We did not see lower lender costs benefit remortagagers as much as we might have liked, as the spread between borrowing and lending costs has increased. This suggests that lenders are wary of potential economic turbulence on the horizon. Spreads are likely to narrow in Q4, however, as concern over Brexit fades and product rates have been falling across the board,” said Nick Chadbourne (pictured), chief executive at LMS.


Competitive rates and sluggish price growth

The market index comprises scores in four categories making up the overall market index score.

The gains in the remortgage approvals score reflected competitive two-year fixed rates during September and a peak of early repayment charge expiries at the end of the quarter. Five-year fixes were again the most popular product accounting for 45 per cent of all remortgages.

But scores also fell in the homeowner equity value and borrower sentiment categories.

The homeowner equity value scores were down 0.6 points to 52.0 owing to sluggish house price growth.

Borrower sentiment fell 0.1 point to 56.9. LMS put the decline down to “wider uncertainty about the short-term political and economic situation, though this slight drop in confidence was offset by more borrowers increasing their loan size.”


Index methodology

The four categories that make up the index are scored from 0 to 100. Scores below 40 denote a positive outlook, 40 to 60 is a neutral outlook and 60 and higher is a positive outlook.

The overall index is the weighted average of each indicator score.

The index is produced by LMS in partnership with the Centre for Economics and Business Research (CEBR).

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