UK remortgaging activity drops drastically, new research shows

At the end of 2012 remortgaging activity in the UK was just a quarter of the levels seen at the start of 2008, according to new research from Lloyds TSB.

Between January 2008 and October 2008, the number of remortgages accounted for 51% of total mortgage lending but by the end of December last year this has fallen to just 24%.

From November 2008 to July 2011 the number of remortgages accounted for two fifths or 39% of total mortgage lending whilst fixed rates were on average above SVR. But since the end of last summer there has been a slight revival in remortgage activity, rising by 7% in the fourth quarter as average fixed rates fell below the average SVR.

According to the latest analysis from the bank borrowers may no longer be better off staying on standard variable rates (SVRs). Since late 2008, falling SVRs lessened the gap with fixed rate mortgages and significantly reduced the incentive for many borrowers to remortgage. However, given the recent fall in fixed rates, some homeowners may find a better rate by remortgaging.

Whilst the total number of remortgages in 2012 was 12% lower than in 2011, there were some signs of improvement in the latter part of the year with a 7% increase in remortgaging activity between the third and fourth quarter.

Historically, remortgage activity has typically been driven by borrowers replacing their fixed home loans at the end of their term to avoid moving on to an SVR. This is because SVRs, on the whole, were more expensive and brought uncertainty over future monthly payments. However, this changed in recent years as interest rates fell to an all time low.

Even though SVR rates have generally been higher than fixed rates since August 2011, remortgaging activity on the whole has remained subdued, averaging 29,700 per month, or 37% of total mortgage lending. Over this period, the average SVR rate was 24bps more than average fixed rates.

With fixed rates falling since August 2012, the incentive to remortgage should have increased. For example, if a homeowner took out a two year fixed rate in December 2012, their monthly payment would be £519 and in the same month the payment on an SVR mortgage would have been £548.

‘With SVRs at historically low levels, many home owners have actually found their mortgage payments have reduced at the end of their term and the incentive to remortgage has been reduced,’ said Stephen Noakes, mortgage director at Lloyds TSB.

‘However, as we start to see fixed rates dropping, prudent borrowers taking stock of their home loans could benefit from their monthly payments falling further,’ he added.