UK mortgage rate falls encourage lending

Remortgaging activity in the UK jumped almost 20% last month with the highest average remortgage loan to value (LTV) being recorded since January 2009, new data shows. There was also a 17% monthly increase in applications, according to February’s National Mortgage Index from the Mortgage Advice Bureau, one of the UK’s leading independent mortgage brokers.

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 from 5.02% in August 2012 to 4.36% in February 2013.

Since the government’s flagship 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%. The data also shows that the popularity of fixed rate remortgage applications in February remained stable at 91.7%, the highest figure ever recorded by the index.

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 5% since the FLS began. 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.

Quote from PropertyCommunity.com : “UK home owners believe that the value of their property declined over the last month, for the 31st consecutive month, albeit at the joint slowest rate since July 2010, new research shows.”

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.

‘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,’ said Brian Murphy, head of lending at the Mortgage Advice Bureau. ‘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,’ he explained.

‘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,’ he added.