Finding a remortgage isn’t always easy – especially in the middle of a house price slump. Understandably cautious, most lenders are restricting their remortgage deals to people with a maximum LTV ratio of 60-80%.
But is that such a prohibitive figure? And is the situation likely to improve or deteriorate? The latest Quarterly Bulletin from the Bank of England contains some useful information on secured debt among mortgagors. It also looks back to the 90s to see how today’s house price slump compares with the last one.
Today, the Bulletin reports, about 40% of mortgagors said they had more than £90,000 of secured debt. Almost 15% owed more than £150,000. Back in the mid-90s, a mere 5% of mortgagors owed more than £90,000.
Since then, however, house prices have trebled – and mortgages have necessarily grown too. So the Loan to Value (LTV) figures paint a more accurate picture, revealing how much people owe as a percentage of the property’s value.
In 2008, around 4% of mortgagors were actually in negative equity, owing more than the property was worth, while in 1995, this figure was around 7%. Around 13% owed 75-100% of the value of their property in 2008, compared with around 22% in 1995. The percentage of homeowners in each of the three lower categories (0-25%, 25-50% and 50-75%) had grown between 1995 and 2008.
After all, as the Bulletin puts it: ‘previous rises in house prices had left most homeowners with a substantial buffer of housing equity’. The average house may have dropped by around £31,000 between October 2007 and November 2008, but before it did that, it had more than trebled in just ten years, rising from £61,489 in October 1997 to £186,044 in October 2007 (according to the Nationwide House Price Index).
Even so, 2008’s LTV ratios were significantly higher than they’d been in both 2005 and 2007 – which will come as no great surprise, given that house prices fell steadily all the way through 2008.
160 of the mortgagors questioned said they’d refinanced – and it seems 15% of them had difficulty doing so, as they’d either moved to their lender’s standard variable rate (SVR) or had applications turned down before they successfully found a remortgage deal.
Remortgaging isn’t, of course, the only time the LTV ratio counts. Mortgagors with high LTVs were more likely to find that credit became harder to obtain. Over 40% of mortgagors with LTVs of over 75% said they’d found credit harder to obtain in 2008, compared with around 18% of low LTV mortgagors.
This in itself may have been enough to put some people off the idea of equity withdrawal. In all, just 6% of the mortgagors who took part in the survey said they’d taken out an additional secured loan in the last 12 months, compared with 10% in 2007 – and 14% in 2006.
While some people might have no choice but to remortgage in the immediate future, others may be able to wait for remortgage deals to improve. But will they? With experts in the mortgage market expecting a further drop of 10-15% in 2009, it looks like LTV ratios will get worse before they start getting better again. On the other hand, the base rate has plummeted in recent months – and the Government is trying to encourage lenders to provide more loans and mortgages at more competitive rates. What kind of remortgage deals will we see on offer at the end of 2009? Only time will tell.
