Interpreting the FSA's quarterly mortgage data
Posted on 11 December 2012 by
The FSA has today published its latest mortgage lending quarterly lending figures, for the third quarter of this year.
One plus point with these figures, as with the CML statistics, is that they are actual figures, not the seasonally adjusted rubbish we get with many other lending and house price statistics.
However, as details of the main lending and mortgage approval numbers are already known, as a result of figures previously issued by the Bank of England or CML, the most interesting statistics are provided by some of the less headlined numbers, in particular the split of outstanding mortgage balances between fixed and variable rates.
The proportion of new mortgages in Q3 on fixed rates was little changed at 56% and has been at least 50% in every quarter of 2011 and 2012. However, the proportion of all outstanding mortgages on fixed rates has fallen over the last year from 29% to 27%. With total outstanding mortgage balances of £1.23trillion this suggests that around £24.5bn of mortgages which were on a fixed rate have reverted to a variable rate, probably SVR or a tracker, without the borrower either remortgaging or effecting a product transfer to another fixed rate.
However because FSA statistics only show the split between fixed and variable rates of the total mortgage loan book to the nearest whole number this figure of £24.5bn needs to be treated with some caution because, due to rounding, the actual decline could be anything between just over 1% and just under 3%, i.e. between £12.3bn and £36.7bn.
A significant minority of borrowers coming to the end of their fixed rate will be mortgage prisoners and a significant minority of the 73% of borrowers on variable rates will be very happy with their variable rate because they are either on a cheap term tracker or will have reverted to the old SVRs of Nationwide or Lloyds TSB/Cheltenham & Gloucester, which are capped for the remaining term at 2% above Bank Rate.
However, as a result of the substantial drop in fixed rates over the last few weeks, coupled with some SVR increases this year, the gap between SVRs and fixed rates has widened considerably. With 5 year fixed rates available at around 3% up to 75% LTV and below 4% even up to 85% LTV, whereas SVRs (except the old rates referred to earlier) vary from just under 4% to just over 6%, worthwhile remortgage opportunities have increased substantially.
Furthermore, most borrowers with a repayment mortgage will have paid off at least 2% of their mortgage over the last year, which in many cases will more than compensate for any fall in the value of their property. Many people who a few months ago might have thought it not worthwhile remortgaging from their SVR will now find they can make a substantial saving by doing so, whilst at the same time insuring themselves against the risk of an unexpected rise in interest rates over the next 5 years.
With many people’s finances being stretched, and likely to be more so as the economy flatlines, or worse, an insurance policy which effectively pays you to take it out is not to be sneezed at!
The blog postings on this site solely reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and neither Charcol Limited nor Ray Boulger will accept liability for them.