New research has found that many homeowners are aiming to cash in over £9,000 of equity gains made over the last year by remortgaging.The research from Mortgage Advice Bureau, which used ...
New research has found that many homeowners are aiming to cash in over £9,000 of equity gains made over the last year by remortgaging.
The research from Mortgage Advice Bureau, which used data from over 250,000 product searches via price comparison websites, has found that the typical customer looking to remortgage in Q1 2015 had a home worth £248,191.
This was up 7.9% from £230,100 in Q1 2014: a rise that is roughly in line with annual house price inflation¹, giving people an extra £18,091 of property equity.
Over the same period, the average remortgage loan sought also rose from £119,954 (Q1 2014) to £129,023 (Q1 2015), as the average remortgage loan-to-value (LTV) sought remained consistent at 52%.
The data suggests that – rather than leaving the extra £18,091 of equity in their home and letting rising prices reduce their borrowing as a percentage of the property's value – homeowners are instead looking to cash in some of their equity gains by remortgaging and borrow £9,069 more on average than a year ago.
As well as seeking bigger loans, customers looking to remortgage are also increasingly keen to stretch their repayments over longer terms. While 76% searched for a minimum 25 year loan term in Q1 2014, this increased by ten percentage points to 86% in Q1 2015.
Brian Murphy, head of lending at Mortgage Advice Bureau, said: “Releasing cash is often a major incentive for people to consider remortgaging, whether to consolidate other debts, pay for home improvements or finance other spending. The fact that many people's properties have gained in value over the last year offers some the chance to take the same percentage loan that they would have done if they remortgaged 12 months ago and give themselves a significant cash boost.
Another benefit of rising house prices is that fewer people will be trapped in negative equity and more people will be in a position to negotiate a remortgage deal. Those who are not motivated to release cash can still make big gains by cutting their rates by taking their pick of the attractive deals on offer.”
Borrowers with past credit blemishes disappear from view
The Tracker also indicates how the mortgage market has become more challenging over the last year for borrowers with previous credit problems.
The percentage of customers citing past credit difficulties when searching for a purchase mortgage dropped from 3% in Q1 2014 to less than 1% in Q1 2015. There was an even bigger shift among remortgage customers, where the percentage reporting past difficulties dropped from 6% to less than 1% over the same period.
This trend suggests that fewer customers with past difficulties have been motivated to seek a new loan since the Mortgage Market Review (MMR) took effect in Q2 2015 – or that those in this situation are less included to disclose an imperfect credit history when investigating a mortgage deal online.
Brian Murphy, commented: “The MMR rules certainly make some types of borrower search harder for a deal to suit their needs and personal circumstances. But many borrowers can take comfort from the growing number of specialist lenders on the market which has boosted the product range. These new lenders operate safely within the affordability rules, and are often more willing than some mainstream brands to cater for people with an acceptable blemish on their credit record.”
Average salaries of mortgage hunters increasingly polarised
Comparing the average income of people searching for new deals, there is also evidence of the purchase and remortgage markets moving in opposite directions over the last year in terms of social inclusion.
The average combined income of people seeking a new mortgage rose 22% from £51,846 in Q1 2014 to £63,487 in Q1 2015 as appetite for purchases was driven by higher earners.
In contrast, the average combined income of people seeking a remortgage deal moved in the opposite direction: falling 27% from £64,180 in Q1 2014 to £46,724 in Q1 2015.
The figures suggest that while affordability constraints are limiting some people's access to property, low interest rates and recovering house prices are resulting in a more inclusive remortgage market where more people – including lower earners – have an opportunity to benefit from switching their existing loan.
Brian Murphy, said: “We are likely to see more homeowners exploring the remortgage market later this year as they scope out their options ahead of a base rate rise. But government and industry must not get distracted from the need for decisive housebuilding measures to encourage a more socially inclusive market for property purchases.”