Remortgage market ‘overwhelmingly healthy’ in Q2

The remortgage market experienced an “overwhelmingly healthy” second quarter, according to new research published by LMS.

The latest LMS Quarterly Healthcheck Index indicated a “positive outlook” for the future, with lenders hesitant to increase costs to consumers, preferring instead to remain competitive by maintaining low rates.

LMS measured four key indicators – remortgage approvals, borrowing costs, homeowner equity and consumer sentiment – and found that all four areas had shown signs of continued growth in Q2.

With index scores between 40 and 60 considered a neutral outlook, a score below 40 considered negative, and score over 60 a positive outlook for the industry, the largest change was recorded in the borrowing costs indicator – which improved by 11.5 points in Q2 to stand at 71.1, the highest level since Q1 2017.

Elsewhere, the remortgage approvals indicator increased by 0.7 points to stand at 70.2, the homeowner equity indicator recorded a rise of 3.1 points to 77.8 and its highest reading on record, while the consumer sentiment indicator recorded a third consecutive increase to stand at an all-time high of 62.0.

“The remortgage market witnessed an overwhelmingly healthy Q2, with continued growth across all key indicators, LMS CEO, Nick Chadbourne, commented. “This pushed the index into entirely positive territory for the first time since the pandemic began and marked its highest overall score since Q2 2013.

“The notable improvement in the borrowing costs Indicator score is promising. Despite a slight uptick in borrowing costs faced by lenders, two and five-year fixes have decreased in cost for a second consecutive quarter. This signals a positive outlook for the future, as it suggests that lenders are hesitant to increase costs to consumers, preferring instead to remain competitive by maintaining low rates.

“The second largest driver was an increase in the homeowner equity Indicator. This came as house prices continued to soar ahead of the stamp duty holiday deadline, incentivising borrowers to bring forward purchases.

“While we predict a marginal slowdown in the remaining quarters of this year with the Stamp duty Land Tax (SDLT) tapering, house prices are set to remain high due to the extreme imbalance between supply and demand and increased affordability due to record low interest rates.”

Chadbourne also suggested that the only factors likely to disrupt the upwards trajectory of house prices are inflation and interest rate hikes, which he warned have the potential to cause the market to turn.

“As long as interest rates remain low, demand will stay high,” he added. “However, the market is vulnerable to hikes in the Bank of England's bank rate. If this occurs sooner than expected, house prices could drop.

“Rising inflation poses an additional risk, if it forces the Bank of England to raise interest rates quickly in response. However, until supply is resolved, inflated house prices are set to remain, and we expect to see more borrowers opting to stay put in this environment, boosting remortgage activity and contributing to a healthy remortgage market for the next few months.”

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