LMS: affordability worsening and rates expected to rise

LMS: affordability worsening and rates expected to rise

The number of people remortgaging year-on-year in February rose by 35% to almost 44,000 according to conveyancing service provider LMS.

This was the highest number since January 2009 when 44,100 people remortgaged.

The firm said the value of remortgaging fell in February, down from £7.1bn in January to £6.8bn – the result of a decline in the average loan size, which fell by £7,347 to £154,138 in February. Concurrently, total mortgage lending fell by 8%, which meant that remortgaging accounted for 37% of total lending in February – the greatest amount since March 2011.

LMS said the growth in the number of remortgages is the combined result of low rates, down from 2.15% in December 2016 to 2.05% in January, and the will of remortgagors to lower their monthly repayments, with 20% managing to do so in February.

Despite the rise in the number of people remortgaging, affordability worsened. In January, the repayment as a percentage of total income rose month-on-month from 16.9% to 17.8%. This will concern homeowners who already face tightening purse strings as a result of rising inflation, which hit 2.3% in February, LMS said. 

Anticipation of a rate rise remained high in February. 49% expect a rate rise within the next year – the same percentage believe rates will remain the same. However, this follows months of speculation and false expectations of a rate rise, stretching back to the final months of 2016.

The number of homeowners who said they will wait more than eight years to remortgage increased from 11% in January to 17% in February.

Andy Knee, chief executive of LMS, said: “February enjoyed the biggest boom in recent remortgaging history. Remortgage transactions rose to their highest level in eight years as homeowners took advantage of continued low rates and the opportunity to lower monthly repayments.

“However, February also fired a warning shot. Affordability worsened, more homeowners expect rates to rise and more are prepared to wait longer to remortgage again. Caution may well set in once again.

“Meanwhile, inflation has risen to 2.3% and real wages are starting to fall. The consequence: homeowners will have less in their pockets come the end of the month. Remortgaging can help alleviate a potentially difficult financial situation, for example, one-in-five reduced their monthly repayments by remortgaging in February.

“With the macroeconomic climate expected to be more precarious from March onwards, homeowners would be wise to take advantage of current conditions and remortgage now – before it’s too late.”