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Product transfers dominate remortgage business in lockdown – UK Finance

  • 04/09/2020
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Product transfers dominate remortgage business in lockdown – UK Finance
Mortgage refinancing activity fell just four per cent in the second quarter of 2020 as remote and online processes suited lockdown conditions, figures from UK Finance’s Household Finance Review suggested.


This was less steep than the 48 per cent decline seen in the purchase market. 

The ease of product transfers over remortgages also pushed more borrowers down this route, as product transfer volumes grew two per cent in Q2 and accounted for 77 per cent of all refinances, up from 72 per cent in the previous quarter. 

Remortgages where extra borrowing is required suffered the greatest decline of 22 per cent year-on-year, likely due to the need for face-to-face interaction with mortgage advisers. 

UK Finance said under normal conditions, borrowers with higher balances would have looked to the wider market for a remortgage while those with lower balances were more likely to choose the quicker option of a transfer. 

However, a five per cent increase in the average loan size for a product transfer to £145,000 compared to a one per cent rise in external remortgage loan size suggested those who usually would have remortgaged decided to switch with their existing lender. 

Some of these borrowers also would have been those who took out a payment deferral or been furloughed, making refinancing more difficult. Others may have wanted to look to the whole market for a remortgage but been put off by the challenges caused by the lockdown. 


Homemovers impacted by lockdown

House purchase lending dropped 48 per cent in Q2 as the nation went into lockdown, and homemovers were disproportionately affected due to being more reliant on a housing chain because of logistical challenges as well as the need to buy and sell.  

In April, homemover numbers dropped 61 per cent year-on-year compared to 53 per cent for first-time buyers and 54 per cent for buy-to-let borrowers. This picked up slightly after the sector reopened in May, but the three per cent growth in activity in June still remained below that seen in the same month last year. 

Despite this, a rebound is expected in Q3 if Zoopla’s estimation that 370,000 transactions were put on hold due to the lockdown resume. UK Finance said these would not immediately continue if buyers were deterred by the economic situation or needed more time to get their finances back on track. 

UK Finance said internal data it held on mortgage applications which measure lending at the earliest stage of the process also indicated a return to growth in early Q3. 


High LTV risk 

UK Finance said as of 14 August, the total number of borrowers on payment deferrals dropped to 731,000. 

Borrowers with higher LTV mortgages had a larger proportion of people on payment deferrals, making up 17 per cent of those with 95 – 100 per cent loan to value (LTV) mortgages and 16 per cent of 90 – 95 LTV mortgages.  

This drops to around 13-16 per cent for borrowers at 50 – 90 per cent LTV, while 13 per cent of borrowers in the 25-50 LTV tier have deferred payments and six per cent of those at 25 per cent and below are on a mortgage holiday.  

UK Finance said although firms continue to lend at higher LTVs and loan to incomes (LTI), this could explain some of the caution towards these borrowers as there is a worry they will struggle with payments. 

While the body does not have details of existing borrowers’ current income, it said there was also evidence that those whose payment deferrals were ending soonest were more likely to have relatively low incomes at the time of their original mortgage application. 


Arrears and repossessions 

Mortgage arrears saw a small uptick in Q2, following a modest rise in Q1. The 73,580 mortgages in arrears at the end of Q2 was three per cent lower than the year before.  

The low increases were likely driven by customers missing payments before they were able to take advantage of the mortgage payment holiday. 

Possession numbers dropped to zero due to a ban on repossessions and evictions, with only voluntary repossessions at the request of the homeowner taking place. These low numbers are set to continue in Q3 as the moratorium scheme continues until 31 October. 

Eric Leenders, managing director for personal finance at UK Finance, said: “The economic and logistical impacts of lockdown in the second quarter of 2020, restricting the ability of households to buy or move house, brought about a radical reduction in activity in the mortgage market and shifted refinancing further towards internal product transfers.  

“These impacts are now receding, and we are beginning to see some recovery in the housing market.  

“Although economic activity is beginning to recover, the outlook in the jobs market suggests that customers will still need support and lenders stand ready to help as required,” he added. 


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