Number of people switching to new loans dropped 20% over the month, as a rise in first-time buyers fails to lift the market
The number of people remortgaging plummeted in June as talk of interest rate cuts persuaded borrowers to stick with lenders’ standard variable rate (SVR) deals rather than switching to new loans, according to the latest data from the Council of Mortgage Lenders (CML).
A total of 23,400 borrowers switched their loan to a new lender over the month, a drop of 20.9% on May’s figure and down by 24.5% from June 2011.
The value of those loans was down by 18.4% over both the month and the year, to a total of £3.1m.
Recent months have seen a flurry of lenders increasing their SVRs, but some are committed to keeping them within a set range of the Bank of England base rate, and even those that have been increased remain low by historical standards.
With lenders often charging arrangement fees in excess of £1,000 for their best deals, and speculation that another interest rate cut could be on its way before the end of the year, it seems borrowers are increasingly happy to sit tight.
However, Mark Harris, chief executive of mortgage broker SPF Private Clients, said this could change now lenders have launched the lowest five-year fixed-rate deals on record.
“It looks as though borrowers have been sitting on their lender’s SVR and waiting for cheaper remortgage deals to come along, which are starting to filter through,” he said.
The CML’s figures show that the only buoyant area of the property market in June was the first-time buyer sector: the number of first-time buyers entering the market increased by almost 10% in June.
A total of 19,200 first-time buyer loans were completed during the month, an increase of 9.1% on May’s figure and the second highest monthly figure since July 2010.
Only in March 2011 were more loans granted to those taking a first step on to the housing ladder, and that was driven by an rush of new borrowing ahead of the end of a stamp duty holiday on properties costing between £125,000 and £250,000.
The increase in first-time buyer numbers was not enough to prevent the mortgage market contracting over the month. The CML figures showed gross lending totalled £11.7bn in June, 6% lower than May’s total of £12.5bn and 7% lower than in June 2011.
The bounce in first-time buyer numbers came before the introduction of the government’s Funding for Lending scheme, which is designed to prompt banks and building societies to offer more mortgages to households who have been struggling to raise finance since the credit crunch.
Since the scheme went live on 1 August several lenders have cut interest rates on deals for those with a 10% deposit, or introduced new 95% loan-to-value (LTV) mortgages. However, rates remain much higher than on mortgages for borrowers with larger deposits and lending criteria is strict.
Harris said: “There were more first-time buyers than we might expect given how tough it is for them to drum up a big enough deposit to get on the housing ladder.
“It is encouraging that this sector is showing some resilience, but many first-time buyers will inevitably be relying on their parents to help with a deposit. Those who don’t have this assistance will have to wait to see whether the Funding for Lending scheme delivers better rates on higher LTV bands.”