Remortgage level at ten year low

The proportion of home loans advanced to people remortgaging sank to its lowest level for more than 10 years during August, figures showed today.

Only one in four mortgages taken out during the month was for people remortgaging, the lowest proportion since the fourth quarter of 1999, the Council of Mortgage Lenders said.

Around 25,000 loans were taken out by people switching to a new deal during the month, 13% fewer than in July and 19% down on August last year.

There was also an 8% fall in the number of mortgages advanced to people buying a new home at 51,600.

The group said the fall in lending for house purchase was in line with the traditional summer lull, with August typically a quieter month for the housing market as people put buying plans on hold while they went on holiday.

But it does not anticipate a pick-up in the number of people remortgaging in the coming months.

It said that, with interest rates expected to remain low for some time, there was little incentive for homeowners to remortgage off their lenders' standard variable rate, some of which are as low as 2.5%.

Recent house price falls, and the ongoing tight credit conditions, also mean many people do not have enough equity in their property to switch to a new deal.

Michael Coogan, director-general of the CML, said: "August is a traditionally slow month for mortgage lending and it was no different this year.

"We expect a quiet market to continue for the foreseeable future. While we do not know what the impact of the comprehensive spending review will be on our sector, it will clearly contain austerity measures that will likely further dampen consumers' appetite to borrow."

The group expects lending to slow more significantly year-on-year during the final months of 2010, while it is unlikely to pick up during 2011.

Mr Coogan said: "With some uncertainty surrounding future house price trends, we would expect a muted market in the next few years.

"The problem of excess capital, that led to record lending and borrowing in 2007, has self-corrected and will not return."

There was a slight loosening in the lending criteria banks and building societies imposed on first-time buyers during August, with the average deposit put down by someone taking their first step on to the property ladder dropping back to 21%, after increasing to 24% during June and July.

Lenders also advanced an average of 3.17 times a first-time buyer's salary, up from 3.14 times last month, but down on the levels seen earlier in the year.

But the changes failed to boost the number of people buying their first home, with the number of mortgages advanced to first-time buyers dropping by 5% during the month to 18,300.

The fall was even more dramatic among homeowners who were buying a new property, with the number of loans advanced dropping by 10% to 33,200.

This group also reduced the proportion of their property's value that they borrowed to just 66%, the lowest level for six years.

The figures come as the Royal Institution of Chartered Surveyors said house prices fell for the third month in a row during September, as the number of sellers increased, but potential buyers continued to stay away from the market.

The group blamed the shortage of buyers on the uncertainty surrounding the future direction of the housing market and the wider economy, and the ongoing tight mortgage finance.