• Average amount of equity (cash) withdrawn by remortgaging tops £35,500 per customer – a new historic record and almost double the amount seen in January
• Improving wages means better affordability despite average mortgage interest rates rising for first time in nine months
• Remortgage affordability relative to that of purchase mortgages best for three years
• Remortgage lending up 20% year-on-year in August, topping £4.3bn but down from summer peak months
The latest figures from LMS reveal that the average amount of equity withdrawn from remortgaging per customer rose to £35,590 in August as borrowers capitalise on competitive rates to withdraw more equity from their homes.
This figure is a new historic record and a 30% increase from July when the average amount was £27,315. It is also 76% higher than August 2014, when the average amount was just £20,219.
Affordability remains manageable after a 3% annual increase in wages far outstripped the minor increase in average mortgage rates, which rose from 2.56% in June to 2.57% in July. As competitive rates entice borrowers to remortgage, the gap between new purchase mortgages and remortgage repayments as a percentage of income has grown. Annual remortgage repayments account for 17.9% of income compared to 20.9% for new purchase repayments – a difference of 3% and the widest the gap has been since July 2012.
LMS also reveals the number of remortgage loans increased by 18% from 22,900 in August 2014 to 27,080 in August 2015. However, this was 13% lower than the number of remortgages recorded in July 2015 after remortgage lending slowed following two very strong summer months.
LMS estimates that the value of monthly gross remortgage lending fell by 17% to £4.2bn in August compared to July's CML figure of £5.1bn (and down from June's £5.3bn). However, this is an increase of 20% from August last year.
Commenting on the latest figures, Andy Knee, Chief Executive of LMS said:
"Rising house prices and low interest rates mean homeowners are withdrawing record sums of cash from their homes by remortgaging without impacting their loan-to-value ratio as evidenced by a drop in new LTVs from 55% to 53% in August.
"However, an increase in average rates for the first time in nine months, however small, is an indication that we may finally be starting to see the end of record low products and competition among lenders as rumours of an interest-rate rise persist. Despite a sign that the mood might be starting to turn, annual wage growth and the growing gap between mortgage and remortgage payments mean the affordability of remortgaging is better than it has been for years.
"Although the Bank of England Governor, Mark Carney, has consistently stated that when the base rate does rise it will occur slowly and gradually, even the smallest rise could see monthly payments increase enough to damage household budgets. Fixing now at a competitive rate would avoid an increase in outgoings that may otherwise be seen.
"A slight decrease in remortgaging activity from the levels seen at the start of summer is nothing to be concerned about and we anticipate maintained momentum throughout the rest of 2015 and into 2016."