When the UK government introduced social distancing laws in March there was an immediate 20% fall in remortgage activity in the UK. This was to be expected as there are serious concerns about the economy, property prices as well as employment. However, while this fall of 20% is perfectly understandable in the current situation, there are signs that remortgaging activity is starting to pickup again with April expected to show like for like growth on March.
Low base rates
UK base rates currently stand at 0.1% which is a historic low for the UK. In the short to medium term it is highly unlikely will see any increase in UK base rates – which would appear to have attracted those looking to remortgage. However, there are a number of factors to take into consideration aside from low base rates.
• Mortgage offers removed
Those who closely follow the UK mortgage market might be aware that a number of mortgage providers have withdrawn certain offers. At this moment in time it looks as though the buy to let sector has been hardest hit with offer removals but time will tell whether this is just a short-term phenomenon.
• Tighter mortgage criteria
There has also been a tightening of mortgage criteria with many lenders deciding to remove offers involving 80%+ LTV ratios. In the midst of this crisis, and concerns about the economy and unemployment, this is again perfectly understandable.
• Headline mortgage rates
One of the main factors which keeps the UK mortgage market “competitive” is the number of mortgage providers and individual packages on offer. Therefore, as some packages are removed we are starting to see a slight tick upwards in headline mortgage interest rates.
• Property valuations
You will have heard the terms “virtual valuations” and “desktop valuations” fairly regularly over the last few days. Due to social distancing and the closure of many businesses, with estate agents not viewed as key workers, it is proving impossible to carry out physical property valuations. However, more and more mortgage providers are using virtual/desktop valuations as a basis for mortgage applications.
Innovation amongst mortgage providers
As we touched on above, the use of virtual/desktop valuations and the ability of many mortgage providers/estate agents to work from home has kept the wheels of the UK mortgage industry moving. It seems inevitable that we will see greater dependence on virtual/IT solutions in various areas of the UK property sector and mortgage industry going forward. At this moment in time it is worth considering where we would be without the Internet?
Future remortgaging activity
Initial signs for April remortgaging activity are very good with volumes up circa 30% on a like-for-like basis compared to March. As a number of introductory mortgage interest rate offers come to a close, holders will need to decide whether to:-
• Move to standard variable rates (SVR)
• Request a payment holiday
If possible, and assuming the interest rates are acceptable, it looks as though many are looking at remortgaging. That said, if for some reason this was not possible or there may be a delay beyond the expiry of the promotional rates, it could be time to request a payment holiday. After all, the option of a payment holiday was put in place by the UK government to support individuals and families as well as the property sector.
It looks as though April could show significant growth in remortgaging activity compared to March which was a difficult month to say the least. We are still seeing seasonal variation to a certain degree but obviously the majority of change is dictated by the coronavirus and the impact on economies/mortgage providers. If at all possible, it would make sense to consider remortgaging properties which were financed on significantly greater interest rates. Or those where promotional offers are coming to an end and the default SVR rate is not competitive.