There are indications of a “strong recovery” in the outlook for the remortgage market, even when compared with pre-COVID-19 performance, according to the latest Remortgage Healthcheck Index published by LMS.

The conveyancing solutions provider, whose Index tracks changes in four key indicators, suggested that Q3 2020 was primarily driven by an “enormous improvement” in its homeowner equity indicator.

LMS’s Index shows the overall health of the remortgage market by tracking homeowner equity value as well as the volume and value of remortgage approvals, remortgage borrowing costs and consumer sentiment, with each indicator assigned scores between 0 and 100.

The overall healthcheck score, which is the weighted average of each indicator score, was 60.2 in Q3 2020, an increase of 11.7 points from 48.5 in Q2, giving a positive overall score for the first time in five years. The latest figure also built on two consecutive quarters of reduced performance thanks to the pandemic and the suspension of the housing market.

However, LMS noted that the gaps between the rates charged by lenders and their own funding costs, known as “spreads”, have increased – leading to higher borrowing costs for consumers in Q3. Furthermore, fewer customers increased their overall loan size from Q2 to Q3, despite an improvement in consumer confidence, which pushed the Index’s sentiment indicator down slightly.

“Strong scores for both the  approvals and equity indicators are a really encouraging sign for the health and resilience of the market, and to see the highest index score for five years is very promising,” commented LMS CEO, Nick Chadbourne.

“House prices rising mean more borrowers qualify for better LTV products, and bigger loans mean they have more control over their biggest asset – their home. Many have been hit hard by the pandemic, but the vast majority have more cash in the bank as hospitality and travel spending has dropped. Growing loans for home improvements are a sign of confidence as homeowners are prepared to spend those savings.

“It is also promising to see an increased number of cases being approved by lenders, as credit availability will be key to the continuing economic recovery. It’s likely that a lot of theses cases were product transfers, which undoubtedly provide an easier journey, but don’t often give the best value for money.

“If the ultra-low Bank of England base rate, high demand and government incentives like the stamp duty cut continue over the next months, we could see even more improvement, but those who just product transfer might lose out in the long-term.”

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