In the closing months of 2023 and into the early part of 2024, the UK mortgage market exhibited signs of resilience and recovery, particularly driven by a notable increase in remortgaging activity. This resurgence, as highlighted by recent data from Octane Capital and LMS, suggests a cautiously optimistic outlook for both lenders and borrowers navigating the post-pandemic landscape.
The latter part of 2023 saw an average monthly increase of 7.7% in overall mortgage approvals, a promising reversal following a notable downturn in August and September of the same year. This recovery was not uniform across the board, with remortgaging activity surging by 14.7% per month, significantly outpacing the modest 4.6% increase in home purchase approvals. The rise in remortgaging is particularly poignant, reflecting a strategic shift among homeowners to lock in more favourable rates amidst fluctuating market conditions.
Despite these positive trends, the market has yet to return to its pre-2022 vigour when monthly approvals consistently exceeded 130,000. The comparison to September 2023's figure of just over 70,000 approvals underscores the ongoing challenges within the housing market. However, the end of 2023 brought a glimmer of hope as inflation rates dipped closer to the Bank of England's 2% target, fuelling speculation that a base rate cut might be on the horizon for 2024. This speculation was further bolstered by a drop in swap rates, leading to a reduction in mortgage rates offered by lenders.
Yet, the path to recovery is fraught with uncertainty. An unexpected rise in inflation to 4.0% in December cast doubts on the continued downward trend of mortgage rates. This uncertainty, according to Jonathan Samuels, CEO of Octane Capital, may prompt homeowners to adopt a 'wait and see' approach before committing to a new remortgaging deal, potentially leading to a stagnation in market activity.
On a more positive note, January 2024 witnessed a 14% increase in remortgage activity compared to the previous month, with remortgage instructions soaring by 70%. This surge is reflective of stabilising mortgage rates and increased competition among lenders, offering more attractive pricing options for borrowers. The average remortgage loan amount in London stood at £378,477, with the rest of the UK at £175,186, indicating a robust demand for remortgaging across the country.
The preference for shorter-term fixed-rate deals, particularly two-year fixed-rate products, which accounted for 45% of January's remortgaging, highlights a strategic approach by borrowers. This trend suggests that homeowners are not only looking to capitalise on current rate offerings but also positioning themselves to take advantage of potential future rate reductions.
Moreover, the housing market has seen house prices increase at their fastest rate since the previous year, with a 2.5% increase. This growth, coupled with stabilising mortgage rates, may improve loan-to-value ratios for many customers, potentially catalysing further market activity in the months ahead. As noted by Nick Chadbourne, CEO of LMS, this development could lead to a pronounced increase in remortgaging and overall market dynamism.
In summary, the UK mortgage market, while still recuperating from previous setbacks, is on a path to recovery, buoyed by strong remortgaging activity and strategic financial planning by homeowners. The landscape remains complex, with interest rates, inflation, and housing prices influencing decision-making. However, the adaptability and resilience demonstrated by borrowers and lenders alike point towards a cautiously optimistic outlook for the UK's housing finance sector in 2024.
If you are considering remortgaging, please do get in touch.
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