The remortgage market is sprouting “green shoots of recovery”, according to new data released by Legal Marketing Services (LMS).

Publishing its latest Remortgage Healthcheck Index which covered the first and second quarters of 2020, LMS suggested the overall health of the remortgage market had resulted in just a marginal decline of 6.9 points for its index score, despite the impacts on the market felt from COVID-19.

The LMS index tracks changes in four key indicators – remortgage approvals, remortgage borrowing costs, homeowner equity value and consumer sentiment – and also shows how remortgage activity is performing alongside wider market conditions.

Each indicator is scored between 0 and 100, with scores between 40 and 60 considered neutral, a score below 40 considered negative, and score over 60 seen as positive for the industry. The overall healthcheck score is the weighted average of each indicator score.

LMS announced that its Q1 2020 overall healthcheck score was 55.4 and had remained neutral into Q2 2020, with an overall healthcheck score of 48.5.

Across the board, there were falls from each indicator except remortgage approvals, which rose by 12.1 points between Q1 and Q2. LMS suggested this was driven by a strong increase in the value measure, even as the raw number of approvals declined.

“Green shoots of recovery are sprouting, but we’re not out of the woods yet, ” commented LMS CEO, Nick Chadbourne.

“Despite the COVID-19 pandemic that has dominated the first half of the year, it is promising to see that the effects led to an only marginal decline of 6.9 points for the overall score of our Remortgage Healthcheck Index. Our comprehensive, data-led review covering Q1 and Q2 shows stability in the majority of metrics.

“Particularly promising is that the value of remortgage approvals rose sharply, even if overall volumes were down. This indicates that lenders are regaining confidence, even if they are testing the waters with a reduced number of loans initially.

“Furthermore, the borrowing costs indicator shows a decrease to the average cost of a fixed rate deal, further positive news for borrowers.”

The borrowing costs indicator worsened by 6.3 points to 55.7 in Q2, as the benefits of lower mortgage rates were outweighed by an increase in funding against lending spreads. LMS indicated that house prices decreasing in Q2 also resulted in a steep decline in the homeowner equity indicator, falling from 55.2 to 0.

The borrower sentiment indicator also fell from 56.9 in Q1 to 54.7 in Q2, as the UK found itself in the full grip of the coronavirus pandemic.

“We cannot ignore homeowner equity, which dropped from 55.2 to 0 between Q1 and Q2, the largest fall across the board,” Chadbourne added.

“The outlook for this indicator remains unsettled, despite the rise in house prices fuelled by ‘pent-up demand’, according to the latest data from HMRC. However, there is still a prediction of further falls as demand plateaus and government support schemes, such as the furlough scheme, come to an end in Q4.

“We are encouraged by the strength of consumer resilience, demonstrated by only a small decline in the borrower sentiment indicator. Our data shows that the low-point for the consumer confidence metric was hit in April, and since then it started to rise again as normality has returned.

“Nonetheless, the future is still uncertain, and we will have to take a ‘wait and see’ approach for how both borrower sentiment and the wider market will fare over the second half of 2020.”

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