Loan sizes fluctuate with borrower confidence.
The LMS 2021/2022 annual report revealed a steady increase in instruction and completion volumes throughout the year after the Stamp Duty Land Tax holiday extension was announced last March.
“The extension took pressure off the purchase market and gave the industry more time to focus on remortgaging,” CEO Nick Chadbourne (pictured) said.
The high volume of instructions and completions continued to build throughout the year, with pipelines coming to a head in Q4 just before ERC expiries peaked on December 31.
The average monthly payment decrease for those who remortgaged was £225; 44% of borrowers increased their monthly remortgage repayments, while another 44% reduced theirs.
Almost half (49%) of borrowers reported an increase in their total loan size, which Chadbourne attributed to an array of factors throughout 2021.
The start of the year witnessed an increase in loan size “as confidence was buoyed by economic recovery and better-than-expected unemployment rates.”
This confidence waned in the final quarter with rising inflation and interest rates, which Chadbourne predicted would continue to rise in 2022.
Of those who remortgaged in 2021, 52% opted for a 5-year fixed rate product, with 68% of borrowers’ purchasing habits motivated by security over their monthly payments and only 20% wanting to lock in a fixed rate out of worry about the economy.
Although 2-year fixes spiked in popularity in Q3 due to record low interest rates, Chadbourne predicted that longer-term fixed rate products would dominate in 2022 alongside increasing rates.
“Looking ahead . . . we will see the first effects of two major product purchasing events. 2-year fixes taken out when the property market reopened in 2020 will begin to expire, along with 5-year fixes which were taken out in 2017, when 50% of all products were this type,” he said.
This, set against another base rate increase, the ongoing energy crisis and the post-furlough job market, will play a part in remortgage activity in 2022.
“Industry collaboration and tech innovation will be key to ensuring the industry has the tools to process the high levels of activity and ensure all borrowers can secure the right deal for them,” Chadbourned added.