The highest average remortgage loan to value (LTV) recorded since January 2009 coincided with a 17% monthly increase in applications, according to February’s National Mortgage Index from Mortgage Advice Bureau (MAB).
Using data from more than 500 brokers and 800 estate agents, the National Mortgage Index shows how the rise in activity has been fuelled by the continuing drop in fixed rates, with average two, three and five year rates each falling by 0.11% or more since January.
Average three year rates have now fallen for six successive months (5.02% – Aug 2012 vs. 4.36% – Feb 2013). Since the Funding for Lending Scheme (FLS) was introduced in August 2012, average fixed rates have fallen by more than 0.5% across the board: two year rates have shed 0.57% to 4.11%; three year rates are down by 0.66% to 4.36%; and five year rates have plummeted by 0.73% to 4.14%.
Unsurprisingly, the popularity of fixed rate remortgage applications in February remained stable at 91.7%: the highest figure ever recorded by the Index when it first appeared in January 2013. Lenders’ willingness to permit higher LTV borrowing also saw the average remortgage LTV hit 62.1% – up by almost a full percentage point since January and by over five percentage points since the FLS began.
Table 1: Falling rates have improved the outlook for remortgaging
Change since Jan 2013
Change since July 2012
|2 year fixed rates|
|3 year fixed rates|
|5 year fixed rates|
|% of remortgage borrowers choosing fixed rates|
|Average remortgage LTV|
Growing competition in the market is also creating more choice for consumers as lenders compete for volume. The total number of mortgage products was 4% higher in February 2013 than the previous month, and 5% higher since the turn of the year – passing 9,000 for the first time since December 2011 to reach 9,107.
This monthly increase was largely down to a 13% rise in the number of direct products available, with an extra 307 products appearing to take the total to 2,734. However, intermediary products have behaved the most consistently in recent times, with a 1% increase making February the tenth consecutive month where numbers have risen to their current level of 6,373 (the highest since January 2012).
Purchase mortgage borrowers had to contend with a 5% growth in the average purchase price to £216,768 in February. However, the average size of purchase deposits fell for a second successive month, dropping by 2% in the month to £61,034 and by 5% since the start of the year.
As a result, the average purchase LTV crept up 0.1% in February to reach 71.1%. While this is still some way below the 71.8% average from February 2012, it is still the highest figure recorded since then – suggesting that incentivised funding through the FLS is slowly encouraging a more confident approach to higher-risk lending.
Brian Murphy, head of lending at Mortgage Advice Bureau, said: “Remortgaging in the current climate is not just a practical move but one that makes increasingly good financial sense. In simple terms, we have never seen fixed rate usage so high. With so little to choose between two and five year rates, more people are also opting for longer fixed terms as the fees on some shorter deals outweigh any differences in rates.
“Where products are concerned, the picture is changing on an almost daily basis, with lenders pricing to attract borrowers’ interest and reacting to the growing rate war. On current form, a new product that appears to be a market-leading offer can be overtaken in as little as 24 hours.
“Brokers will be crucial to increasing lending volumes over the next few months, as smaller lenders are limited by the reach of their branches and staffing resources.”