Remortgaging and First Time Buyers Driving Market

Strength in remortgaging activity amongst homeowners, alongside higher first time buyer numbers, are likely to have been the drivers of the mortgage market in October, according to the latest estimate from UK Finance.

The organisation’s most recent estimate, for the month of October, shows £23.1 billion borrowed over the month, which is 14% higher than a year ago. Two thirds of this was carried out by high street banks, which equated to £15.3 billion.

House purchase approvals in October totalled 40,488, which is weaker than the 41,447 average recorded over the previous six months and 3% lower than in October 2016.

Remortgaging and First Time Buyers Driving Market

Remortgaging approvals for the month reached 34,036, however, which is up on the 27,163 average seen over the previous six months and 37% higher than in the same month last year.

UK Finance notes that the housing market position is a little mixed, similarly to the economy.

Since the start of 2017, residential property transactions have averaged just over 100,000 per month, with October’s figure marking the highest monthly number since March 2016. This has been supported by recovering levels of house purchase approvals over the year.

However, UK Finance’s house purchase approvals data, which covers just over two thirds of the market, shows a little weakness in October. If activity continues to fall back over the last couple of months of the year, overall activity levels in 2017 will be similar to those in 2014-16. In other words, there has been little recovery in property transactions over the last four years.

The difference between then and now, the organisation explains, is that the mix of activity favours first time buyers more, with cash buyers and buy-to-let landlords making up a small portion of overall activity.

This is not a big surprise, however, as first time buyers have been supported by a variety of Government housing schemes, good credit availability and competitive mortgage rates, while tax changes have weighed on buy-to-let and cash activity.

Common factors, such as the Stamp Duty change in March 2016 and some aspects of the tax relief changes, which came into effect from April 2017, have affected buy-to-let landlords alongside cash buyers, as some cash transactions are for second homes.

However, a range of other regulatory changes has also weighed on buy-to-let activity. These include the Prudential Regulation Authority’s [PRA’s] stress tests, which came into force in January this year, and tougher underwriting standards for portfolio landlords – those with four or more mortgaged properties.

The tax relief changes have also had the effect of dampening landlords’ ability to re-leverage their portfolios, leading to the number of buy-to-let loans for remortgaging to level off over the last few months.

Homeowner remortgage loans have fared much better, with levels reaching an eight-year high in the 12 months to September. UK Finance expects this to continue in the short-term, as its remortgage approvals data shows a large increase of over a third in approvals in October, as customers locked into deals ahead of the interest rate rise earlier this month.

Commenting on the latest data, Mohammad Jamei, the Senior Economist at UK Finance, says: “The anticipated bank rate rise saw a flurry of remortgage activity, as many homeowners took advantage of the competitive rates on offer. Borrowing was also boosted by stronger first time buyer activity, as this segment benefitted from good credit availability, lower rates and Government housing schemes.”