Remortgaging and standard status dominates slowing market

The proportion of mortgage business represented by remortgaging continues to grow, according to latest survey information obtained by IMLA from both intermediaries and lenders.

Based on IMLA's latest survey of intermediaries, almost half (49%) of all mortgage cases introduced were remortgages - an increase from 48% at the time of the previous survey. Intermediaries expect to do 2% more remortgages in the coming two months. Lenders agree that remortgaging activity will grow, with 72% of them expecting volumes to be higher or much higher over the next quarter.

This growth in remortgaging comes at the expense of, particularly, home mover and first time buyer business. Home mover mortgage business has contracted from 23% to 20% over two months, although first time buyer loans increased slightly from 10% to 11%, according to brokers. But they expect both categories to decline over the next two months, by 3% for first time buyers and 2% for home movers. For their part, 78% of lenders predict first time buyer business will be slightly or much lower over the next quarter, and 61% expect similar declines for home mover loan business.

As for buy-to-let, intermediaries say it has held steady since the previous survey (at 18%) but they do expect a small decline of 1% in the future. The majority of lender respondents said buy-to-let would remain stable, although a minority indicated it would ease slightly.

Standard status (prime) customers represent a growing proportion of the total - with almost three quarters (74%) of cases introduced by intermediaries being for this type of borrower, up from 73% two months ago. Self certification cases were down slightly but sub-prime was unchanged. Over the next two months, standard status loans are expected by brokers to grow slightly, and other types decline marginally. Lenders report a similar pattern, with mainstream expected to grow slightly and all types of sub-prime (particularly heavy and medium-adverse) and self certification to decline.

The overall picture is of a market that is expected to contract in 2008, with lenders expecting that volumes will be 11% lower in 2008 than in 2007. Intermediaries are rather less gloomy, predicting a reduction of 6% year on year.

Peter Williams, IMLA's executive director, says: "With the current rebalancing of the market, it's becoming more difficult for non-standard borrowers to secure a loan to meet their circumstances. As a result we've seen standard status mortgages grow as a proportion of the total and a slight decline in non-conforming and self certification business. It is important that such borrowers turn to a broker who has the expertise and knowledge of the market to help them find a suitable product."

"With home-buying activity currently depressed and many fixed rate and discounted deals up for renewal, there has been an increase in remortgaging business. In some cases, however, borrowers will struggle to remortgage and may end up paying significantly more once they switch to the lender's standard variable rate."

"Lenders and brokers need to work together closely, not just to support new borrowers looking for a suitable mortgage, but also to help mitigate the repercussions of payment shock for existing borrowers who reach the end of their current deal."

Notwithstanding the current difficult conditions, latest CML figures (for Q1 2008) show mortgage business originated through intermediaries holding up well, with 83% of first time buyer loans (by value) and 79% of remortgages being booked through brokers, up from 79% and 74% respectively the previous quarter. Home mover loans rose from 61% to 64% over the quarter.

Peter Williams concludes: "Concern has been expressed by intermediaries that lenders who have a branch network are favouring direct origination and by-passing brokers. So far, the statistics don't appear to bear that out. While the size of the pie fell by around 30% due to credit constraints, the proportion of loans booked via the intermediary sector has risen for all types of mortgage, reinforcing the important role they continue to play. The second quarter will be a key indicator of whether or not this trend is continuing."