Economic tracker - October 2011

24 October 2011 | By Ian Andrew, head of intermediary sales at Nationwide, Martyn Dyson, head of mortgages, Nationwide

Gross mortgage lending was £13.1bn in August 2011, 5% higher than in the previous month and 8% more than August 2010.

What’s more, they also reveal remortgaging has continued to increase, with 34,100 loans worth £4.2bn remortgaged in August 2011 30% higher than in August 2010.

Even if we acknowledge the possibility that lending could decline later in the year, as it did in 2010 when lending fell in Q4 after a positive Q3, these are encouraging figures nonetheless.

They make good reading for borrowers, lenders and intermediaries, all of whom stand to benefit from more activity in the market. But this doesn’t mean we can safely say the mortgage market is on its way to recovery for good.

We mustn’t ignore the continued threat of another recession and the impact of a sluggish economy. There is also the eurozone challenge, which some industry commentators believe may keep lending low for years. I don’t know what effect these factors will have on the mortgage market, but anything that has the potential to rock confidence is a headwind the market would rather not have.

But it is possible for brokers and lenders to mitigate the potential negatives. In times of economic uncertainty, businesses that can adapt to their environment will be most successful. So what can brokers do? Now is a chance for them to talk to their clients to help them plan for the future.

According to Moneysupermarket.com, average two-year fixed rates are at a record low of 3.82%, down from 4.01% in August 2011. The low interest rate environment is helping fuel the remortgage market, encouraging borrowers to switch to better deals. Remortgage data from the CML is evidence of this and presents a great opportunity for brokers to engage and do business with clients.

Not everyone will be in a position to remortgage and it might not even be financially advantageous to do so. But the important thing to remember is that if your clients are unsure of their options speak to them now. This will put them in the best possible position to take advantage of low rates and should help you do more business.

Explain the extension option to borrowers

Above, Ian Andrew mentions how businesses that adapt best to their environment will be most successful. I think the same applies for consumers as well. Some of your clients may have told you recently that they are finding it difficult to move home.

Perhaps they are put off from moving because they are worried about stagnant house prices, or maybe the cost of upsizing is too great in these difficult economic times. Either way, I can understand their concerns and there are borrowers out there who want to upsize but do not feel it is possible.

One possible solution is for them to consider improving their home rather than moving. In some circumstances this can be more cost-effective than moving as building extra space could cost less than trading up.

For example, upsizing from a three-bedroom house to a four-bedroom property would cost an extra £40,000 on average, more if you include legal fees and relocation costs, whereas the price of building an extension can cost around £30,000 or £35,000 for a loft conversion.

It seems many borrowers are already doing something as nearly one in five of our further advances are to fund structural work such as extensions, many of which improve the value of homes.

For instance, recent research by Nationwide shows that creating an extra bathroom adds 6% to the value of the average home, while adding a double bedroom pushes up the value by 12%. Building an extension or loft conversion to create a double bedroom and en-suite bathroom adds even more, at 23%. So an extension not only gives borrowers more space, it can also potentially improve the value of their home too.

So if your clients feel helpless in the current climate, explain that they have options, with a number of lenders allowing people to borrow more on the mortgage to fund home improvements. We recently revamped our further advance range to enable customers to obtain further borrowing up to 85% LTV at rates typically lower than other borrowing.

Of course there are a lot of factors at play that determine how successful home improvements will be, such as the quality of the work carried out and the type of property. But extending could be an option that adds value.

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