LMS Remortgage Healthcheck Index rises by 2.6 points, reaching second-highest reading ever
LMS Remortgage Healthcheck Index, detailing the health of the remortgage market in Q4 of 2021, rises by 2.6 points, reaching second-highest reading ever.
Key points from publication:
- Remortgage Approvals partially bounced back from a 7.0-point fall in Q3, increasing by 2.6 points due to faster growth in average approval values
- Borrower Sentiment dipped by a further 2.2 points, driven by a decline in consumer confidence
- Borrowing Costs increased to the highest reading in eight years as the Bank of England increased the base rate
LMS has today published its latest Remortgage Healthcheck Index, produced in partnership with the Centre of Economics and Business Research (CEBR), covering Q4 2021.
The LMS Remortgage Healthcheck Index shows the overall health of the remortgage market and tracks changes in four key indicators: volume and value of remortgage approvals, remortgage borrowing costs, homeowner equity value and consumer sentiment. The index also shows how remortgage activity is performing alongside wider market conditions and how the key indicators are affecting consumer spending and habits.
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.
Q4 2021 Overall Healthcheck: 70.1 = positive:
The LMS Remortgage Index rose by 2.6 points to reach 70.1 in Q4 2021. This rise places the index in firmly positive territory – it is the highest reading in over eight years and the second-highest ever recorded.
The rise in the index was mostly driven by a 5.7 point increase in the Borrowing Costs indicator. This rise was due to the narrowing of the gap between mortgage rates and lenders’ funding costs, which reported the lowest value since Q3 2008. The narrowed spread suggests lenders continued to absorb increases in their costs, making it a favourable environment for borrowers.
The Home Equity and Remortgage Approvals indicators also increased by 5.3 and 2.9 points respectively, stemming from continued demand and property price growth, as well as average remortgage approval values growing at a higher rate than house prices.
Remortgage Approvals: 66.1 = positive:
The Remortgage Approvals indicator ticked up as growth in average approval values increased, but fell short of reaching levels seen in early 2021.
The Remortgage Approvals indicator increased to 66.1 after reclaiming 2.9 points following its dip by 7.0 points in Q3 2021.
The uptick is due to the average value of approvals increasing. Although the growth in average approval values accelerated in Q4, the indicator fell short of returning to the 70 point mark achieved in Q2 due to a slowdown in the growth rate of approval numbers, from 14.1% in Q3 to 9.6%. Despite this, the indicator remained in line with averages throughout the pandemic and the number of remortgage approvals continued to climb towards pre-pandemic levels.
This increase in the number and average value of remortgage loans resulted in a positive overall score for the Remortgage Approvals indicator.
Borrowing Costs: 74.8 = positive:
The Borrowing Costs indicator increased, beating the previous pandemic peak, amid the Bank of England (BoE) base rate rise.
The Borrowing Costs indicator rose by 5.7 points in Q4 to stand at 74.8. This growth was due to an acceleration in the narrowing of ‘spreads’, the difference between rates charged by lenders and their own funding costs.
This narrowing allowed the indicator to rise despite the Bank of England’s base rate increase. In order to remain competitive, lenders continued to absorb increases in their own funding costs in Q4, rather than passing them on to customers. However, the increased pressure on mortgage rates suggests that the further Bank of England base rate rise in early February will likely reverse this upward trend at the end of Q1 2022.
Homeowner Equity: 92.0 = positive:
The Homeowner Equity indicator reached another record high, despite the end of the stamp duty holiday.
The Homeowner Equity indicator rose by 5.3 points in Q4 to stand at 92.0. This was a record high for the second consecutive quarter, after Q3 2021 saw the steepest increase in the indicator since Q3 2020, when the UK housing market bounced back from a near standstill.
House price growth increased in Q4 even after the close of the stamp duty holiday at the end of September, with annual house price rises still averaging 7.1% across the quarter as in Q3.
Those looking to remortgage can expect prices to slow throughout 2022 as mortgage rates and the cost of living rise.
Borrower Sentiment: 58.6 = neutral:
Borrower sentiment continues to slip as the number of borrowers increasing loan size dropped further.
The Borrower Sentiment indicator fell for the second consecutive time, by 2.2 points. This brought the indicator to 58.6 points, crossing into neutral territory for the first time since Q1 2021.
This drop was chiefly driven by a decline in remortgager sentiment, with less borrowers choosing to increase the size of their loans in Q4 (46% of LMS borrowers, the lowest this figure has ever been in 2021) and more reducing their loans sizes (22% of LMS borrowers, the highest this figure has ever been in 2021).
The fact that less borrowers chose to take out a larger loan in Q4 suggests a decline in consumer confidence, possibly due to the rising cost of living and the increase in COVID-19 infections as the Omicron variant spread.
Nick Chadbourne, CEO at LMS, comments:
“While the majority of indicators remained positive throughout Q4, the Borrower Sentiment score dropped into neutral territory. This is perhaps unsurprising as consumer confidence took a hit due to the rising cost of living and the Bank of England base rate increase in the quarter.
“Despite falling confidence, remortgage activity is expected to remain healthy in 2022. This is because the two year fixes that saw a spike in popularity when the housing market reopened in 2020 due to low interest rates are now beginning to expire.
“This expected pipeline of activity is set against the ongoing energy crisis and post-furlough job market, so we’d expect these issues to play a part in the market over the course of this year as people remortgage to free up equity.
“As such, the industry needs to ensure all borrowers are getting the right product for them, and collaboration will continue to be key in driving this. Many tech developments which were accelerated through the pandemic are now coming to fruition, including our delivery of the first fully automated remortgage cases by the end of 2022.
“These developments will set the scene for a more efficient market with the ability to process cases faster in the coming year and beyond.”
Kindly shared by LMS
Main photo courtesy of Pixabay
