The Future of Remortgaging

Introduction

Remortgaging activity in the UK has fallen significantly. This is a result of the low base rate encouraging borrowers to revert to lenders' standard variable rates rather than remortgaging. This brief looks at past activity in the market before forecasting how remortgaging activity is likely to perform over the next few years.

Scope

*Uses Datamonitor's proprietary Retail Banking Consumer Survey to investigate market trends.

*Looks at how the main players are reacting to current developments in the market.

*Provides a forecast for the remortgaging market over the period 2009-2013.

Highlights

Remortgage gross advances plunged by almost two thirds from £34,200m in Q3 2007 to £11,800m in Q2 2009, while the overall market declined from £98,600m to £33,900m during the same period, largely driven by the decline in house purchases.

The fallout from the credit crunch saw lenders retreating from heavy competition or pulling out of the market completely. However, in the remortgage market the large lenders have remained. The market is dominated by big players with Lloyds Banking Group, Santander, Barclays, Nationwide, HSBC and RBS controlling about 90% of the market.

When their special deals end, borrowers are more willing to stay on the lender's SVR as many of them are now below the rates offered for those choosing to remortgage. They are no longer perceived as an uncompetitive rate for borrowers who have not managed to organize a remortgage but are among the best rates out there.

Reasons to Purchase

*Gain an insight into what your competitors are doing to deal with the slump in the remortgaging market.

*Increase your understanding of your consumers' behaviour.

*Use Datamonitor's market forecast to plan your future strategy with confidence.

Report Highlights
Highlights

Remortgage gross advances plunged by almost two thirds from £34,200m in Q3 2007 to £11,800m in Q2 2009, while the overall market declined from £98,600m to £33,900m during the same period, largely driven by the decline in house purchases.

The fallout from the credit crunch saw lenders retreating from heavy competition or pulling out of the market completely. However, in the remortgage market the large lenders have remained. The market is dominated by big players with Lloyds Banking Group, Santander, Barclays, Nationwide, HSBC and RBS controlling about 90% of the market.

When their special deals end, borrowers are more willing to stay on the lender's SVR as many of them are now below the rates offered for those choosing to remortgage. They are no longer perceived as an uncompetitive rate for borrowers who have not managed to organize a remortgage but are among the best rates out there.
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DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
ANALYSIS 2
The level of remortgaging in the market has declined since its peak in 2007 2
Remortgaging gross advances have dropped less rapidly than house purchase advances 2
The decline in gross lending came as a result of a decline in all forms of lending 3
The buy-to-let market saw huge falls in gross lending between Q3 2007 and Q2 2009 4
Competition among lenders is low and is likely to remain so in the near future 5
The level of competition in the market is low but the re-entry of Northern Rock has boosted the market 5
The big lenders have been the most successful at attracting new remortgage business 6
Prior to the crunch lenders priced remortgaging deals to make minimal margins 7
The SVR has reached a point where it has become favorable for consumers to stay put 7
The average tracker rate is the most competitive rate but SVRs continue to fall 7
There has been some recent movement back onto fixed-rate deals 8
A dearth of remortgaging activity could hamper a recovery 9
Brokers are traditionally strong in the remortgaging market 10
Lenders in difficulty are paying borrowers to take their business elsewhere 10
Innovation in remortgaging has been minimal since the credit crunch began 10
Remortgage calculators are available on some websites 10
HSBC has reintroduced its rate matcher deal to boost remortgaging 11
Lenders have been looking to attract more borrowers onto offset mortgages 11
Lenders are offering four-year fixed terms 13
Banks are taking steps to reduce the costs faced by borrowers when remortgaging 13
Innovation is likely to return once the market has recovered sufficiently 14
Consumers are weighing up their options regarding remortgaging 14
According to some sources the number of consumers seeking remortgage advice has risen 14
Over the last 12 months more borrowers switched than reverted to their standard variable rate 14
The share of new mortgages on new property is generally lower the more recently the mortgage was arranged 15
The majority of consumers do not intend to remortgage over the next six months 16
With falling house prices equity release has fallen 17
Consumers are substituting savings for paying off debts 18
Datamonitor forecasts that the market for remortgaging will recover during 2011 18
Recovery will begin in 2011 18
A rising base rate will see borrowers rushing onto fixed deals 20
There is unlikely to be a movement away from remortgaging products in the future 20
APPENDIX 21
Supplementary data 21
Definitions 27
Equity 27
Loan-to-value 27
Title insurance 27
Methodology 27
Forecasting methodology 27
Further reading 28
Ask the analyst 28
Datamonitor consulting 28
Disclaimer 28
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List of Tables
Table 1: Datamonitor forecast of remortgaging and the total mortgage market, 2007-13f 19
Table 2: Annual gross advances for house purchase and remortgaging, 2000-08 21
Table 3: Quarterly gross advances split by type, Q1 2005-Q2 2009 22
Table 4: Buy-to-let quarterly gross advances, Q3 2006-Q2 2009 22
Table 5: Remortgaging activity by brand of lender 23
Table 6: Average monthly rate for different types of mortgage product, January 2007-June 2009 24
Table 7: Number of different types of loan advanced on a monthly basis, January 2007-June 2009 25
Table 8: Action that best describes situation over the last 12 months 26
Table 9: The impact of the time when the mortgage was arranged on the type of mortgage activity 26
Table 10: Likelihood of remortgaging over the next six months 26
List of Figures
Figure 1: Remortgaging gross advances saw a moderate fall between 2007 and 2008 3
Figure 2: The overall market peaked in Q3 2007 before falling away, remortgaging fell quickly from Q3 2008 4
Figure 3: Buy-to-let remortgage gross advances fell by 87% between Q3 2007 and Q2 2009 5
Figure 4: Barclays/Woolwich has been the most successful at attracting new remortgage business 6
Figure 5: The average standard variable rate has been lower than the average fixed rate since November 2008 8
Figure 6: The majority of borrowers are still taking out fixed-rate loans 9
Figure 7: Remortgage calculators facilitate the complex calculations involved in remortgaging 11
Figure 8: Woolwich outlines the differences between a normal mortgage and an offset one 13
Figure 9: Over the last 12 months more borrowers remortgaged than reverted onto their lender's SVR 15
Figure 10: The share of remortgaging as a percentage of new mortgage activity has fallen in the last six months 16
Figure 11: Less than one fifth of respondents are likely to remortgage during the next six months 17
Figure 12: The total mortgage market will recover sooner than the remortgaging market 19
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