Remortgages Account For More Than 50% Of Sales

Remortgage activity started to pick up in the first two months of 2010, accounting for more than 50% of mortgages, according to the latest John Charcol Index.

The index shows that remortgages increased their market share for the third consecutive month in February, suggesting a revival in the sector.

Mortgages for house purchase represented 47.3 per cent of mortgages sold through broker and adviser John Charcol in February, down from its peak of 58.5 per cent in November, and the lowest market share since April 2009.

The index has also revealed that the split between fixed rate mortgages and tracker mortgages has stabilised in the last three months, and the plummeting proportion of borrowers choosing a fixed rate has levelled out, albeit at the low level of 20 per cent, compared to 80 per cent of borrowers opting for a tracker rate.

The majority of borrowers have been taking their chances with tracker mortgages since mid-2009, and are continuing to do so as economists predict that the Bank of England will hold the base rate at its record low for the foreseeable future.

January and February boosted mortgage lending, following December’s seasonal lull, so John Charcol expects a positive image of the mortgage market to materialise when February’s figures from the Bank of England and Council of Mortgage Lenders are published.

“Both purchase and remortgage activity has increased this year, but remortgages have increased more,” says Ray Boulger, spokesperson for John Charcol.

Higher loan to values and lower rates are encouraging more borrowers to remortgage instead of continuing to languish on their lender’s standard variable rate, but, Mr Boulger added, the increase in remortgage activity over the last two months is largely due to a sharp rise in buy to let mortgage lending.

“Therefore, although mortgage rates have been steadily improving over the last few months, and in the residential market there are now even decent rates available up to 85% LTV – which makes remortgaging worthwhile for many more people – it is too early to be confident of an ongoing increase in remortgage activity,” he said.

Nevertheless, evidence exists which suggests that remortgage activity has bottomed out, Mr Boulger continued, such as increased competition, several lenders increasing their SVR, encouraging more borrowers to remortgage, an improvement in rates, especially for borrowers with only 15 or 20 per cent equity, and a modest recovery in house prices.

Mr Boulger added: “Whilst the 80/20 split between variable and fixed may seem dramatic, trackers have certainly offered the better value since the middle of last year, although a caveat now is that the political risk, particularly of a hung parliament, can’t be ignored. It is also worth noting that due to the market reassessing the future path of interest rates the gap between fixed and tracker pricing has narrowed recently. If this trend continues fixed rates may well come more into the reckoning in the not too distant future.”

© Fair Investment Company Ltd