Loan sizes are also falling while lenders see their interest rate margins at their highest level for four years.
According to LMS data the remortgage market saw a strong rebound in Q3 following the near total shutdown during Q2, largely thanks to high product transfer volumes.
“Quarterly approval numbers are recovering as capacity issues have pushed more borrowers to quick product transfers, but there is still ground to be made up before they return to the levels we saw in Q1 this year,” LMS said.
The proportion of LMS borrowers opting to increase their loan size fell for a second quarter in a row despite an improvement in consumer confidence.
Meanwhile the spreads between funding costs for lenders compared with borrowing rates for consumers have risen to the highest level since Q3 2016, immediately after the Brexit vote, the firm added.
The average repayment rates charged by lenders have ticked up since the lows of the first lockdown in April 2020, leading to higher borrowing costs for consumers.
“This is partly due to banks increasing their safety provisions and becoming more cautious in their lending, especially for borrowers with smaller deposits, and has also been reflected in reduced product choices,” LMS said.
“It’s reasonable to assume that, despite the Bank of England’s ultra-loose monetary policy, cheaper borrowing costs are not being fully passed on to consumers.”
Pivot to remortgaging in 2021
LMS CEO Nick Chadbourne said: “House prices rising mean more borrowers qualify for better loan-to-value products, and bigger loans mean they have more control over their biggest asset – their home.
“Many have been hit hard by the pandemic, but the vast majority have more cash in the bank as hospitality and travel spending has dropped.
“Growing loans for home improvements are a sign of confidence as homeowners are prepared to spend those savings.”
He added that the firm was optimistic for continued strong performance in Q4, though a note of caution should be maintained given that lockdown measures have returned.
“Vitally, the housing market remains open for business, so any impacts will hopefully be far smaller than the first time around,” Chadbourne continued.
“The focus is on home moving at the moment, taking up the majority of time across the industry, but this should tail off in 2021 and we should see a move back to remortgages and away from product transfers.”
