Mortgage brokers have witnessed a surge in remortgages, as borrowers opt for longer-term fixed rates, according to the latest Financial Advisors Confidence Tracking (FACT) Index from Paragon Mortgages.
The fourth quarter (Q4) 2016 report, based on interviews with 201 mortgage intermediaries, reveals that 39% of all mortgages handled by advisors between October and December were remortgages – up by 7% on Q1.
Surge in Remortgages as Borrowers Opt for Longer-Term Fixed Rates
This is also up by 4% on the same period in 2015, with the increase in remortgages reflecting industry statistics from the Council of Mortgage Lenders (CML), which show that there were 34,700 loans for remortgage in December, worth £5.8 billion, representing annual increases of 13% in volume and 14% in value.
Next time buyers are now the second most common type of borrower, having overtaken buy-to-let landlords, accounting for 23% of mortgages handled.
Buy-to-let lending dropped in Q2 following the increase in Stamp Duty, but had recovered by Q4, to 19.3% of all business.
Despite a 2% decline in Q4 2016, first time buyers accounted for 18% of all mortgages handled, remaining stable on Q4 2015.
In terms of interest rate type, there is a clear preference among borrowers for fixed rate mortgages, which accounted for 83% of all lending in Q4 2016, having increased year-on-year since 2010.
Tracker mortgages remain a distant second, at 14%, representing little change over the course of 2016.
Initial fixed or tracker periods of two years are still the most popular products, making up 53% of all cases in Q4 2016 – up by 5% on the same period in 2015. Longer-term products of more than two years accounted for 46% of all cases, with five-year fixes the second most popular product, with 33% of all business.
Unsurprisingly, capital repayment mortgages are the most common mortgage type, accounting for 80% of all products in Q4 2016. This represents a decrease on the previous quarter, but a rise on an annual basis, continuing a slow growth in share dating back to 2007.
Since interest-only lending was scaled back and stricter affordability rules imposed in 2009, the proportion of interest-only mortgages dropped to as low as 14%, and has since remained stable. Despite a slight rise in Q4 2016, interest-only mortgages still account for less than 20% of all cases.
The Managing Director of Paragon Mortgages, John Heron, comments: “Our survey data shows increased levels of activity over 2016, driven particularly by borrowers remortgaging to better rates. These are as likely to be longer-term fixes as they are short-term deals, which bodes well for customer resilience in an uncertain market.
“Buy-to-let had a very strong start to the year, with customers looking to beat the Stamp Duty deadline. There was an inevitable decline in lending in Q2, but volumes have slowly improved as landlords have developed their strategies to mitigate higher taxes on rental income.”