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Remortgage activity positive but borrowers shun loan increases

Paloma Kubiak
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Paloma Kubiak

Borrowers are less likely to increase the size of their loan when remortgaging amid the current affordability squeeze, and the likelihood of higher borrowing costs, a report reveals.

Each quarter, conveyancing service firm LMS produces a ‘remortgage healthcheck index’ with the Centre for Economics and Business Research (CEBR). It tracks the condition of the sector based on four indicators: volume and value of remortgage approvals, remortgage borrowing costs, homeowner equity value and consumer sentiment.

The score for remortgage approvals slumped significantly, by the largest margin since the second quarter of 2011. According to LMS, this was driven by the average value of approvals falling, a situation which was exacerbated by a slowdown in the growth rate of remortgage approvals.

Meanwhile, the number of remortgage approvals grew by 8.5% across the quarter, compared to 10.2% and 14.6% in the two previous quarters respectively.

Borrower sentiment also dropped according to the report, for the third consecutive quarter. This was largely down to a fall in consumer confidence, as a result of the cost-of-living crisis. 

The increased cost of borrowing, as a result of base rate increases, also played a part, with the number of borrowers opting to increase the size of their loans when remortgaging dropping to its lowest level since Q3 in 2020.

LMS suggested that the rising cost of living and borrowing are likely to weigh further on borrower sentiment in the months ahead.

Despite these challenges, LMS pointed to the fact that homeowner equity jumped for a third straight quarter too, reaching a new all-time high, off the back of rocketing house prices. However, the firm noted that those looking to remortgage from Q2 onwards can expect housing demand to soften.

Lower costs for longer

Nick Chadbourne, CEO at LMS, said that continued house price growth, combined with reluctance among lenders to pass on rate increases, are encouraging.

He said: “The focus should continue to be on five-year fixed rate mortgages for borrowers, so they can lock in lower costs for longer. With lenders working to make sure long-term products are available and brokers signposting them for their clients, we can ensure that we support the market as much as possible through the ongoing economic uncertainty.”

Prior analysis from LMS has suggested that significant numbers of remortgage borrowers are opting for longer-term deals in order to protect themselves from cost of living worries.