Remortgaging buoys market as home-buying declines

Remortgaging buoys market as home-buying declines

A strong remortgage sector helped to buoy the property market in January as it was hit by a downturn in home-buying activity.

Home buyers borrowed £8.4bn in January, down 28 per cent on December and unchanged on January 2016, according to the latest figures from the Council of Mortgage Lenders (CML)

The total number of loans advanced was 45,700, a decline of 28 per cent on December and 1 per cent on January 2016, and the lowest since February 2015.

First-time buyers borrowed £3.6bn for home-owner house purchase, down 29 per cent on December but up 9 per cent on January 2016, while home movers borrowed £4.9bn, down 25 per cent on December and 4 per cent year-on-year.

But remortgaging remained resilient, with home owner remortgaging activity up 54 per cent by value and 46 per cent by volume on December – a year-on-year rise of 22 per cent by value and 21 per cent by volume.

Buy-to-let remortgage lending reached its highest monthly level since the stamp duty reform was introduced last year, surging by 22.2 per cent by value. 

The rise coincided with value-based declines in buy-to-let lending for house purchase of 11.1 per cent month-on-month and 42.9 per cent year-on-year.

Remortgaging has been on the increase since August last year, when the Bank of England cut interest rates to 0.25 per cent, prompting homeowners to seek better deals.

While the overall lending figures constitute only a minimal fall on a seasonally adjusted basis, the CML says it is investigating evidence of a long-term decline.

Paul Smee, director general of the CML, commented: “January gives the impression of a flattish market overall, albeit one with a resurgent remortgage sector.

“We expect a seasonal dip in activity in the winter months and this appears to be the case in January. However, the lull in moving activity appears stubbornly persistent, and we have commissioned research on the reasons why the number of transactions seems in secular decline.

“Buy-to-let house purchase activity continues to be weak, despite strong buy-to-let remortgage levels. This will likely remain so going forward as lenders tighten affordability criteria ahead of the Prudential Regulation Authority-mandated stress tests, and the introduction of tax changes in April.”

Jonathan Sealey, chief executive at Hope Capital, said: “The confirmed figures for January are lower than at first expected. Remortgages are the only real area of growth in the market with first-time-buyer activity, buoyant at the end of 2016, dropping right off.  

“As the government gets closer to triggering Article 50 there will of course be many that want to sit tight to see how the land lies. In these situations there are always those that will move to take advantage of a quieter market, so it will be very interesting to see where movement is felt in the next couple of months.

“Affordability is an issue as inflation and continually rising house prices outstrip real wage growth.  This is putting more pressure on buyers’ ability to raise adequate deposits. How lenders respond to this will be key.”