Remortgage approvals fell seven points in the third quarter of 2021, according to the latest LMS Remortgage Healthcheck Index.
The decline was attributed to slower growth in average endorsement values.
The LMS report shows the overall health of the mortgage market and tracks the evolution of four key indicators: the volume and value of mortgage approvals, mortgage borrowing costs, homeowners’ net worth and consumer sentiment.
The index also shows how mortgage activity is performing alongside general market conditions and how key indicators are affecting consumer spending and habits.
Each indicator is scored between 0 and 100, with scores between 40 and 60 took into consideration neutral, a score below 40 took into consideration negative, and mark over 60 seen as positive for industry. The overall health check score is the weighted average of each indicator’s score.
Q3 2021 Overall health check: 67.5 = positive
The LMS Remortgage Index fell 1.7 points to 67.5 in Q3 2021. Yet, despite this slight decline, the index remains firmly positive territory.
The decline in the index was mainly due to a drop from 7.0–one point reduction in the mortgage approvals indicator, driven by slower growth in average approval values. The Cost of Borrowing and Consumer Sentiment indicators also fell by 2.0 and 1.2 points respectively., mainly due to the difference between lenders’ borrowing costs, and fees passed on to the borrower, widening and fewer borrowers are choosing to increase the size of their loans.
Mortgage approvals: 63.2 = positive
The mortgage approvals indicator drops for the first time in 2021 as growth in average approval values slows.
The mortgage approvals indicator fell by 7.0 points to stand at 63.2, following its second-highest reading on record of 70.2 in the second quarter of 2021.
The fall is due to average value of endorsements. While the average approval value continued to rise in the third quarter, this growth slowed and fell below that of house prices, caused the ratio of approval value to house prices to fall from 88% to 86% in the second quarter. Despite the decline, this ratio still remains at a high not seen since Q1 2016.
However, the slight decline in the value of licenses was offset by an increase in the number of licenses, which increased by 14% on a quarterly basis and 18% on an annual basis. This increase translated into a positive overall score for the Mortgage Approvals indicator.
Borrowing costs: 69.1 = positive
The borrowing costs indicator is falling due to a slowdown in spread tightening.
The cost of borrowing indicator fell 2.0 points in the third quarter to 69.1. This shift is due to a slowdown in the tightening of “spreads”. “Spreads” are the difference between the rates charged by lenders to borrowers and their own financing costs.
Despite this, the indicator remained in positive territory, with mortgage repayment rates continuing to decline throughout the third quarter. Despite the slowdown, the continued narrowing of spreads suggests that lenders are still willing to absorb some increases in their own funding costs, rather than passing them on entirely to customers.
Owner Equity: 86.7 = positive
Homeowner Equity indicator hits new high, fueled by stamp duty holiday cut
The Homeowner Equity indicator rose 8.9 points in Q3 to stand at 86.7. It was not just a record high, but the biggest rise in the indicator since the third quarter of 2020, when the UK property market rebounded from a near standstill.
House price growth picked up in the third quarter ahead of the end of the stamp duty holiday at the end of September, with annual house prices averaging 6.2% for the quarter as a whole, compared to 4.7% in the second quarter.
Prices should stay high as demand continues to outweigh supply. As such, those looking to remortgage face an increasingly favorable market as rising house prices mean they hold more equity in their property, which means they can be able to lower monthly payments by getting a lower LTV product.
Borrower Sentiment: 60.8 = positive
Borrower sentiment plummets as the number of borrowers increasing their loans falls below half.
The borrower sentiment indicator fell for the first time in a year, albeit by a modest 1.2 points. This brought the indicator to 60.8 points, close to the border with neutral territory.
This decline was mainly due to a decline in the proportion of borrowers choosing to increase the size of their loans, 48.8% having decided to do so, compared to 52.0% in the second quarter.
The fact that fewer borrowers opted to take out a larger loan in the second quarter suggests a drop in consumer confidence, which may have been caused by deteriorating household finances as the cost of living continues to rise and that rumors of the now confirmed rise in the discount rate are multiplying. rhythm.
LMS Managing Director Nick Chadbourne says: “Despite slight declines in borrowing costs and borrower sentiment scores, all indicators remained positive in the third quarter, signaling the continued health of the mortgage market. The marginal decline in the overall index score is not alarming, but a sign that the market is gradually stabilizing after a year of increased activity.
“The homeowners’ net worth indicator continued to rise, which was good news for homeowners, as it meant an increase in the equity in their property, putting them in a favorable position on a new mortgage. Despite this, consumer confidence has fallen due to rising costs of living and skepticism about keeping interest rates low.
“Healthy levels of activity should continue in 2022 as the 2-year patches removed as the housing market reopens begin to expire. This will be coupled with an increase in technology capabilities that have emerged due to the pandemic, including our expected delivery of the first fully automated remortgage cases by the end of 2022. This will set the stage for a more efficient remo market, with the ability to process more cases faster.