The third quarter was the period that immediately followed the UK referendum in which the British public voted to leave the European Union. Many people felt that business activity would be severely curtailed and although there was a significant fall in UK consumer confidence in the weeks immediately following the vote, much of that negativity now does appear to have been overcome as the wider economy does appear to be once again performing relatively robustly.
In the mortgage arena new transactional activity has remained remarkably resilient with no material reduction in new business overall. Overall transactional activity was down by approx 1.9% in July versus June and by 1.9% in August versus July, but this reflects seasonality associated with the peak holiday season. September witnessed something of as rebound with new mortgage activity rising by more than 12% in September over August. The third quarter mortgage volumes amounted to more than £3,3bn of new lending bringing the cumulative figure to almost £10bn. Completions remained in line with new business and we did not witness a wholesale collapse in housing chains as some had forecast following the vote to Brexit.
Remortgage activity on home owner residential cases edged up as a share of overall activity rising from 23% of transactions in Q2 to 26% in Q3. Buy to Let continues to perform relatively strongly amounting to 16% of overall activity, almost back to where it was prior to last year’s Autumn statement announcing SDLT changes associated with second homes and B2L properties, although currently almost two thirds of that B2L activity is remortgaging.
Lender positions in terms of most frequent usage has witnessed little change at the top of the ranking. Halifax were number one in two of the last three months and remain number one overall. Nationwide wrestled top spot from Halifax for one month in the last three and retained second spot for two successive months and remain second year to date. NatWest were third in each of the last three months and remain third year to date. Santander were and remain fourth having occupied that same spot each month in 2016. Barclays are still fifth but only just having slipped to seventh and eighth in the last two months and are now only 0.1% ahead of BM Solutions in % share terms who are sixth. TSB are now seventh with Virgin Money and TMW tied in eighth, followed by Coventry in tenth, Leeds B.S in eleventh, and Skipton and Accord tied in twelfth spot. Next come Bank of Ireland / Post Office followed by Platform. New entrants Tesco have gained traction and achieved 2.5% of our business in August – HSBC who have recently extended their pilot to now include almost all MAB advisers (excluding N.I) achieved approx 1% share of business in September but not all advisers had access throughout.
At the beginning of the third quarter July average rates across two, three and five year fixes were 2.55%, 2.84% and 3.13%. In the three months subsequently they have fallen to 2.44%, 2.79% and 3.04%. respectively. During that time period we have also seen a BOE base rate reduction, the first since March 2009.
We have for a sustained period reported mortgage product numbers based upon data provided by Trigold. With almost all of our advisers now using Twenty 7 Tec we will in future be using this as the source data to measure any increase or fall in mortgage products numbers Product numbers have been on the rise over several years and we have reported the overall number including those that are categorised as exclusives via specialist distributors (packagers). This has had the effect of increasing numbers quite dramatically, e.g. if a range of say 20 products is made available from a lender and then made available to several different packer groups as semi exclusives, these products will show on mainstream sourcing systems multiple times and therefore be duplicated in the product count. We will in future only report core product numbers and in the short term this will reduce the overall number of products that we report and comment upon.
The Bank of England decision to reduce the Bank Base rate by a quarter of one per cent in August to 0.25% was not a great surprise as many forecasters had predicted that they would make the change at the MPC meeting of July following the UK decision to Brexit at the referendum. The BOE have taken the decision to ease monetary policy by a combination of both a base rate reduction and further quantitative easing to support the UK economy – as in their view growth is likely to be more constrained with the country having voted to Brexit. Whether the decision proves correct only time will tell? The introduction of what is the “Term Funding Scheme” has been designed to ensure that lenders can pass on the reduction in the BBR to existing borrowers who are on variable rates – both tracker and SVR based clients without the lender incurring undue margin pressure – in essence the scheme will be a subsidy to lenders – At this point it is estimated that only around half of all mortgage lenders have passed on the Base rate reduction so it will be interesting to see if there are any consequences applied to the lenders who have failed to do so!. Although the BBR reduction is welcome for many borrowers it is not likely to impact significantly on the buying or borrowing aspirations of many new house buyers or remortgage customers but it will impact further millions of savers adversely!
As we mentioned earlier rates have been falling consistently for a sustained period, however what it does appear to be doing for some existing borrowers is a prompt to consider remortgaging when borrowers receive notification from their existing lenders advising of the change – as for many it will highlight the relatively high rates that many borrowers are languishing on – the average SVR in the market prior to the BOE rate reduction was circa 4.80%. As brokers this provides an ideal opportunity to re-engage with our former customers to appraise them of the range of rate options available to them – falling mortgage rates and in most areas increasing property values mean even more compelling reasons to consider switching – and for some even paying an ERC may prove beneficial!