Quarterly report provides key insights into remortgage market activity in four main areas
LMS has today launched its ‘Remortgage Healthcheck’ Index, produced in partnership with the Centre of Economics and Business Research (CEBR). The first index covers Q2 2019.
The LMS Remortgage Healthcheck Index shows the overall health of the remortgage market and tracks changes in four key indicators: volume of remortgage approvals, remortgage borrowing costs, homeowner equity value and consumer sentiment. The index also shows how remortgage activity is performing alongside wider market performance and how the key indicators are affecting consumer spending and habits.
Each indicator is scored between 0 and 100, with scores between 40 and 60 considered neutral, a score below 40 considered negative, and score over 60 seen as positive for the industry. The overall healthcheck score is the weighted average of each indicator score.
Q2 2019 Overall Healthcheck: 49.3 = neutral
The LMS Remortgage Index scored 49.3 in Q2 2019, a drop of 2.0 points from 51.3 in Q1, giving a neutral overall score.
Remortgage Approvals and Homeowner Equity both fell from Q1 to Q2, by 10.7 points and 0.2 points respectively. Both Borrowing Costs and Consumer Sentiment increased, seeing rises of 1.6 points and 2.2 points. All indicators remain in the neutral band.
Remortgage Approvals: 42.6 = neutral
This indicator measures the volume and value of all accepted and declined remortage offers made by lenders. Nearly half (45%) of those who remortgaged took out a 5-year fixed rate product – the most popular product in Q2.
Despite a decrease of 10.7, down from 53.3 in Q1, the indicator shows the wider mortgage market is still driven by existing homeowners. Current economic and political uncertainty is causing some borrowers to adopt a ‘wait and see’ approach and therefore improve, rather than move. For this reason, over a quarter of LMS borrowers (26%) said that releasing equity was their primary reason for remortgaging, with more than half this group (51%) planning to use these funds for home improvements.
Borrowing Costs: 46.6 = neutral
This indicator measures the rate of change in average mortgage interest rates and the spread between the rates charged by lenders and their own funding costs.
The borrowing cost indicator rose by 1.6 points to 46.6 this quarter, from 45.0 in Q1, even as the average cost of borrower rates fell slightly. An increase in the spread between the rates charged by lenders and their own funding costs suggests that borrowers may soon face tighter credit conditions as lenders seek to build up their margins to protect themselves against potentially higher risks in future.
Homeowner Equity: 52.6 = neutral
This indicator looks at changes in the value of house prices. If prices are increasing, homeowners can remortgage more easily and take advantage of an improved loan-to-value ratio.
The homeowner equity indicator fell by 0.2 points in Q2 2019, to 52.6 from 52.8 in Q1, as price growth slowed slightly. Figures from the Office for National Statistics showed that the average UK house price increased by just 0.9% in the year to June 2019. The slowdown has been prompted by a decline in prices across many parts of southern England.
Consumer Sentiment: 57.0 = neutral
This indicator measures two areas of consumer confidence. The YouGov/CEBR Consumer Confidence Index asks individuals how confident they are about business activity in their workplace, job security, their financial situation and house prices. LMS surveyed borrowers to see whether they have increased or decreased their loan size during the past month. If a larger proportion are increasing their loan size, this suggests that borrowers feel confident about taking equity out of their home to finance other purchases, indicating optimistism about the future.
The combined Consumer Sentiment indicator for Q2 shows a more optimistic outlook from consumers – increasing to 57.0, up by 2.2 points from 54.8 in Q1. The main factor behind this growth was the decision by a large proportion of LMS remortgagers to increase the size of their loan (45%). Only 22% decided to decrease their loan size, while nearly a third of borrowers (32%) kept their loan size the same. The YouGov/CEBR measure also rose from 52.3 in Q1 to 52.6 in Q2.
Nick Chadbourne, CEO at LMS, comments:
“Despite the current climate, the wider mortgage market is still being supported by remortgage activity with existing homeowners choosing to taking equity from their home.
“Although many people naturally remortgage each time their current fix comes to an end, others choose not to do so. Yet with mortgage lenders offering cut-price deals to existing homeowners we have seen even more customers coming to the market, and a healthy proportion increasing their loan size. In Q2 more than 9 out of 10 borrowers (96%) opted for a fixed rate mortgage. Of those that chose this option, 70% wanted certainty over their monthly payments, while 18% were worried about the economic climate and wanted to lock in a good rate.
“These low rates mean that people can potentially save hundreds or even thousands of pounds each year by switching. It is interesting that few homeowners wanted to stay loyal to their existing lender, as this shows that banks can do more to keep their current customers happy.”