The dramatic drop in purchase activity was not seen to the same degree in remortgage figures – industry figures show the £2.8bn written for purchases in June fell to £800m in both July and August, while remortgaging dropped from £2.5bn to £1.9bn across the same timeframe.
A lasting legacy of the pandemic means that we’re still seeing plenty of people moving after reassessing what they want in a home. Landlords are modifying portfolios in response, maybe catering to renters who want more space for homeworking or even equity rich former owner-occupiers, turning to the flexibility of private rented sector (PRS) property to try before they buy in a new, unfamiliar area.
Despite this, I think that remortgaging will continue to be an important driver of business in the coming months. From early 2022 a wave of five-year fixed rates mortgages, taken out in 2017, are set to mature.
In January 2017, the Prudential Regulation Authority (PRA) introduced new underwriting standards. The new rules aimed to address the risk of weaker credit standards that were emerging in the market, with many lenders not taking a landlords’ wider property and business interests into account.
The new standards covered two different aspects of underwriting. The first centred on mortgage affordability and saw the introduction of a minimum affordability calculation, which included the increase in landlord costs as a result of recently introduced tax changes, together with a minimum stressed interest rate.
Generally, lenders applied a lower stressed rate for mortgages fixed over five or more years, reflecting the benefits to the customer of the rate being static for an extended period.
Alongside the appeal of fixing for longer amidst increasing rates, this led to a rise in borrowing over five-year terms – industry data highlights how the number of five-year fixed rate mortgages written increased from 3,008 in December 2016 to 4,167 in January 2017 before increasing to 10,717 in January 2018 and rarely falling below the 10,000 mark since.
With rates still relatively low at present but starting to rise, it is quite likely that we’ll again see borrowers keen to remortgage and secure a good rate at the earliest opportunity.
On remortgaging, around 40 per cent of borrowers withdraw equity and, when compared to a straightforward switch, this takes extra time to process. If service levels are to be maintained, this is something that the industry will need to plan for, with extra resources assigned to key areas.
And, with the Christmas wind-down just around the corner, January will be upon us before we know it so it’s not too early for brokers to start discussing remortgage options with clients.