Lenders face up to the remortgaging paradox

Roger Hillier, product development manager at Mortgage Express Last year was the year of the remortgage and the figures speak for themselves. In 2003 industry figures demonstrated that the gross value of remortgaging was £120.8bn – an increase of 50% over the previous year. Remortgaging has undoubtedly become commonplace across the mainstream and specialist sectors but remortgaging in buy-to-let raises specific issues that provide clues to future trends.

CML figures show that in the first half of 2003, 38% of buy-to-let advances were remortgages. Remortgaging is prevalent in the buy-to-let sector because investors are generally commercially-minded and as such will always be on the lookout for the best deals. Many of them have been quick to take advantage of the remortgaging deals available.

Additionally, there has been an increasing amount of coverage of remortgaging in the trade and national press. Because of their high level of financial literacy many buy-to-let investors have access to this information and are aware of the best remortgage deals around. Competition among buy-to-let lenders has also been particularly fierce, resulting in a range of attractive deals. In addition, brokers have realised that if they are unable to offer customers good remortgaging deals they will go elsewhere. This has also helped stimulate the market.

But the situation is not as simple as it first appears. A recent survey conducted by Mortgage Express found that of people who remortgaged, one third did so because they wanted to borrow more money and just over one in 10 remortgaged because they wanted to buy an additional property. Only two in 10 remortgaged because they wanted a better rate. These results suggest that, contrary to popular wisdom, chasing the best rate is not always the only – or even major – reason for remortgaging. The results certainly ring true with regard to buy-to-let. When you consider that the typical buy-to-let investor has an average of four properties in their portfolio it is apparent that most remortgages are taken to finance further purchases or to add to their portfolio.

Lenders are working to address the retention challenges posed by remortgages but the paradox of remortgaging remains – lenders have to reconcile the desire to tempt customers with better deals with the fact that they will inevitably lose some of their existing customers in the process.