Remortgaging At High Levels

[tinecu]

There's lots of news and comment about how remortgaging is on the increase.

e.g. In 2005 the BBA claim "Stronger remortgaging activity, representing 36% of all approvals, suggests that borrowers are shopping around for better deals and that gross lending will hold up in the coming months."

http://money.guardian.co.uk/lendingfigures...1579443,00.html

e.g2. "What is also certain is that more and more homeowners are now switching lenders. In fact, so much so that the property finance industry refers to such savvy borrowers as 'rate tarts'."

http://www.home.co.uk/guides/remortgaging/

e.g3. "The number of loans approved for house purchase fell to 115,000 in February. Approvals for other purposes were 5,000 lower, but those for remortgaging were 3,000 higher (Table B.)."

http://www.bankofengland.co.uk/statistics/...6/feb/index.htm

e.g.4 over 40% of all new lending to homeowners

www.cml.org.uk/cml/filegrab/ ForecastsJun2006.pdf?ref=4836

Does this affect house prices stats?

According to the bank of england the answer is "no". They claim that new remortgaging to filtered out of the new lending figures. See:

www.bankofengland.co.uk/ statistics/ms/articles/artsp198.doc

However remortgaging seems to be a key MEW tool...for BTL

See: Figure 6 in this ODPM documenthttp://www.odpm.gov.uk/pub/626/HousingMark...b_id1162626.pdf

The correlation in this graph is undeniable. So homeowners use cash on their current home as a deposit to get a BTL mortgage.

So remortgaging, more than being a consequnce of higher house prices and 'rate tarts', actually drives HPI.

This report from B&B shows house purchase to be still much lower than 2000 to 2005. The majority of which is probably BTL purchases.

Also, see the BTL mortgages at an all time high.

In conclusion: The run-away cycle of MEW borrowing through remortgaging to reinvest in BTL is probably constitutes the majority of current house purchases and probably won't slow until the IRs go higher.

Of course I've probably reiterated alot of comment on this site, but remortgaging is an interesting new phenomenon (not a factor in previous crashes) which seems to be directly linked to BTL.

[Goat]

Increases in re-mortgaging could be a sign of financial distress.

1. Borrowers are hunting for the best rate to keep their heads above water.

2. Borrowers are mewing to pay off other debts, meaning they are essentially unable to afford both the house and the rest of their lifestyle.

Edited June 16, 2006 by Young Goat

[tinecu]

Increases in re-mortgaging could be a sign of financial distress.

1. Borrowers are hunting for the best rate to keep their heads above water.

2. Borrowers are mewing to pay off other debts, meaning they are essentially unable to afford both the house and the rest of their lifestyle.

Indeed, these reasons were amongst my first thoughts. However, the correlation with house purchases suggests these reasons are secondary.

Perhaps in future it will be referred to as the Buy-to-let Bubble.