Remortgages lowest since 1997, but all isn't clear

Posted on 24 May 2013 by Simon

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Remortgages lowest since 1997, but all isn't clear

The CML has claimed that remortgaging levels have remained subdued over the last year, with 2012 seeing the lowest number of remortgage cases since 1997.

Last year the CML said that 316,000 borrowers worth £41billion remortgaged loans, while in 1997 it was 293,000 worth £14billion.

The CML also highlighted that out of 6.9 million regulated mortgages taken out since 2005 and still active in March 2012, just 14% (1million) had remortgaged their property once since taking out the original loan, whilst just 2% (130,000), had switched lender more than once.

However at John Charcol whilst remortgaging activity has slipped from it’s 2007 levels, it has remained steady around 40% since 2009, and we’d like to suggest a few reasons as to why this may be.

Early on we recognised that the financial crisis wasn’t going to be resolved overnight, and that with all the uncertainty in the markets and the global economy, combined with the onset of mortgage rationing, the favoured trend of taking a 2 year deal then remortgaging elsewhere was looking very shaky indeed .

During 2009 – 2012 we were ahead of the pack in recommending Term Trackers as the way forward, as although the headline rate was slightly higher than its 2 Year counterparts, this was more than offset by the advantage of not having to remortgage every 2 Years to avoid the lenders Standard Variable Rate (SVR).

In 2009 20% borrowers took a Term Tracker, and this rose to 30% of borrowers in both
2010 and 2011, as it became more and more apparent that the bank rate was going nowhere fast.

It was only last year when lenders increased their tracker margins to levels where they were almost alongside fixed rates, that term trackers, and trackers in general have fell out of favour, and longer term fixed rates are now the product of choice.  However by then all of those borrowers who had taken a term tracker were highly unlikely to change in a hurry, especially with predictions of the bank rate staying very low for a long time to come. 

Also we’d been ahead of the game, in that when recommending shorter term deals, we tended to look more favourably at those lenders whose SVR was guaranteed to be no more than a certain percentage above the bank rate (C&G pre-June 2010), or where the follow on rate was a margin over bank rate (Woolwich – Barclays Bank rate).

During the past few years, we have also seen lenders trying to reduce the number of borrowers sitting on these very low rates, by making it more difficult to borrow additional monies, without being moved onto a worse deal, or moving to a new lender. This new tactic has lead to a rise in second charge lending, which allows the borrower to keep their main mortgage on their favourable rate, and borrow the additional monies on a second charge loan. As a result of this, rates have fallen dramatically for this type of borrowing, and second charge ending peaked at £30million in January of this year.

These strategies have meant that not only does John Charcol have a lot of very happy clients, the vast majority of those clients are not likely to remortgage anytime soon. 

Categories: Mortgages, Remortgaging, Long term fixed rates, Tracker mortgages, House Prices, Interest rates, Buy to let

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