Mortgage Refinancing Making up for Slower Sales

Alex Parsons Alex Parsons | Secured Loan Expert

Sales of new and existing homes have been in decline in the UK for the better part of the last several months. But the mortgage industry is not suffering all that much thanks to an increase in mortgage refinancing among existing homeowners. The balancing act between new mortgages and re-mortgages has managed to keep gross lending numbers relatively stable through the start of the fourth quarter.

The most recent numbers from the Council of Mortgage Lenders show that total new mortgage lending came in at roughly £20.6 billion this past October (2016), up some £1 million from September. However, the numbers are off 5% from the same period last year. Gross lending in October 2015 was £21.8 billion.

The Council blames the reduction on slower sales that are the direct result of a drop in supply. In other words, fewer new mortgages are being approved because people cannot find houses to buy. This is no surprise given the tendency of homeowners to pull back after a very robust sellers?? market lasting from late 2012 through until the end of 2014.

Remortgaging on the Rise

Despite a drop-off in lending for new mortgages, mortgage refinancing is on the rise. The Council reports that remortgaging is up some 17% in the last year. That kind of increase more than offsets the decline in new lending. It is also keeping banks heavily engaged in the mortgage market.

So what is driving the mortgage refinancing boom? Incredibly low interest rates. As you know, the Bank of England dropped the base rate to its lowest level in history following the June 23rd EU referendum. When the base rate declines, interest rates on new financial products tend to follow. Homeowners have to decide whether to seize on the opportunity of a lower base rate to refinance their current mortgages. And why not? Refinancing releases equity and sometimes results in lower monthly payments that are easier on the budget.

The question now is whether the mortgage refinancing surge will continue into 2017. Unfortunately, there is no definitive answer. There are a lot of different things to consider, not the least of which are the following two concerns:

  • Exit Negotiations ?? We still don't know how aggressively the Theresa May government will be in negotiating our exit from the EU. If her people manage to maintain a strong position that looks to significantly benefit our economy, a lot could change in relation to both new mortgages and re-mortgages. If the May government shows weakness, we would expect to see the new mortgage market continue to suffer.
  • Government Housing ?? At some point in the past, the government committed to providing 200,000 new homes per year in order to address an ongoing housing shortage. They continue to fall short of that goal. As a result, families that would have otherwise applied for mortgages will not be doing so for lack of houses to buy. As long as the situation remains unchanged, new mortgage lending will be suppressed.

Good News for Homeowners

While financial experts are digesting the numbers from the Council of Mortgage Lenders, there is plenty of good news for existing homeowners. The surging market for mortgage refinancing is creating a lot of very good deals among banks and building societies all competing to get their share of borrowers. With a little bit of diligent shopping and comparing, homeowners can do very well for themselves in securing desirable remortgage deals.

How about you? Have you been considering mortgage refinancing? If so, now could be the right time to take the plunge.


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