LMS has today published its latest Remortgage Healthcheck Index, produced in partnership with the Centre of Economics and Business Research (CEBR), covering Q3 2021.
The LMS Remortgage Healthcheck Index shows the overall health of the remortgage market and tracks changes in four key indicators: volume and value of remortgage approvals, remortgage borrowing costs, homeowner equity value and consumer sentiment.
The index also shows how remortgage activity is performing alongside wider market conditions and how the key indicators are affecting consumer spending and habits.
Each indicator is scored between 0 and 100, with scores between 40 and 60 considered neutral, a score below 40 considered negative, and score over 60 seen as positive for the industry. The overall healthcheck score is the weighted average of each indicator score.
Q3 2021 Overall Healthcheck: 67.5 = positive
The LMS Remortgage Index fell by 1.7 points to stand at 67.5 in Q3 2021. Yet, despite this marginal decline, the index remains firmly in positive territory.
The fall in the index was mostly driven by a 7.0-point reduction in the Remortgage Approvals indicator, stemming from slower growth in average approvals values.
The Borrowing Costs and Consumer Sentiment indicators also fell by 2.0 and 1.2 points respectively, largely due to the spread between the borrowing costs of lenders, and the costs passed on to the borrower, widening, and fewer borrowers opting to increase the size of their loans.
Remortgage Approvals: 63.2 = positive
Remortgage Approvals indicator drops for the first time in 2021 as the growth in average approval values slows.
The Remortgage Approvals indicator fell by 7.0 points to stand at 63.2, following its second highest reading on record of 70.2 in Q2 2021.
The fall is due to the average value of approvals. Whilst the average approval value continued to rise in Q3, this growth slowed and fell below that of house prices, caused the ratio of approval value to
house prices to fall from 88% to 86% in Q2. Despite the fall, this ratio still remains at a high not seen since Q1 2016.
However, the small fall in the value of approvals was balanced out by a rise in the number of approvals, which rose by 14% on a quarterly basis and 18% on an annual basis. This increase resulted in a positive overall score for the Remortgage Approvals indicator.
Borrowing Costs: 69.1 = positive
Borrowing Costs indicator dips due to a slowdown in the narrowing of spreads.
The Borrowing Costs indicator dipped by 2.0 points in Q3 to stand at 69.1. This slip was due to a slowdown in the narrowing of ‘spreads’. ‘Spreads’ is the difference between the rates charged by lenders to borrowers, and their own funding costs.
Despite this, the indicator remained in positive territory with mortgage repayment rates continuing to fall throughout Q3. Despite the slowdown, the continued narrowing of spreads suggests that lenders are still willing to absorb some increases in their own funding costs, rather than passing them all on to customers.
Homeowner Equity: 86.7 = positive
The Homeowner Equity indicator reaches another record high, fuelled by the tapering of the stamp duty holiday
The Homeowner Equity indicator rose by 8.9 points in Q3 to stand at 86.7. This was not only a record high, but the steepest increase in the indicator since Q3 2020 when the UK housing market bounced back from a near standstill.
House price growth increased in Q3 ahead of the close of the stamp duty holiday at the end of September, with the annual house price averaging 6.2% across the quarter, compared to 4.7% in Q2.
Prices are set to remain high as demand continues to outweigh supply. As such, those looking to remortgage face an increasingly favourable market as rising house prices mean they hold more equity in their property, meaning they may be able to lower monthly payments by securing a lower LTV product.
Borrower Sentiment: 60.8 = positive
Borrower sentiment slips as the number of borrowers increasing loans drops below half.
The Borrower Sentiment indicator fell for the first time in a year, albeit by a modest 1.2 points. This brought the indicator to 60.8 points, close to the borderline with neutral territory.
This drop was chiefly driven by a fall in the proportion of borrowers choosing to increase the size of their loans, with 48.8% deciding to do so, compared to 52.0% in Q2.
The fact that less borrowers chose to take out a larger loan in Q2 suggests a decline in consumer confidence, which may have been caused by worsening household finances as the cost of living continues to rise and rumours of the now confirmed Bank Rate rise were picking up pace.
Nick Chadbourne (pictured), CEO at LMS, said: “Despite small drops in the Borrowing Costs and Borrower Sentiment scores, all indicators remained positive in Q3, signalling the continued health of the remortgage market. The marginal fall in the Index’s overall score is not cause for alarm, but a sign that the market is gradually stabilising following a year of heightened activity.
“The Homeowner Equity indicator has continued to rise, which was good news for homeowners as it meant increased equity in their property, putting them in a favourable position when remortgaging. Despite this, consumer confidence fell due to the rising cost of living and scepticism about continued low interest rates on offer.
“Healthy activity levels are set to remain in 2022 as 2-year fixes taken out when the property market reopened begin to expire.
“This will be paired with a rise in tech capabilities that have emerged because of the pandemic, including our planned delivery of the first fully automated remortgage cases by the end of 2022.
“This will set the scene for a more efficient remo market, with the ability to process more cases quicker.”
