Benefit from the remortgaging trend

Many predict that 2008 will be an excellent year for remortgages and the sector has already got off to an encouraging start.

Recent figures from the British Bankers’ Association show a slight increase in total mortgage lending in January but a record-breaking 49% of approvals involved remortgage deals.

A report from Leadbay suggests the demand for remortgages has increased by 25% since October last year and has overtaken demand from first-time buyers for the first time.

Although the housing market has slowed, this rise indicates that many consumers are aware of the benefits of remortgaging and are looking to lower their mortgage rates at the earliest opportunity once their current discount or fixed rate deals expire. It also suggests first-time buyers are either still struggling to get on the housing ladder or waiting to see if house prices fall.

The increase in remortgage activity highlights the opportunity for brokers to generate repeat business from their existing client base. Brokers looking to retain clients when it is time for them to remortgage should maintain a database with borrowers’ details and their reversion dates.

Both parties should schedule follow-up discussions as clients’ fixed or discounted rates come to an end. In fact, it would make sense to discuss remortgage possibilities when initial deals are signed. This might seem an obvious way to retain business but according to Dunfermline, only 14% of its customers were retained by brokers after their initial rates expired. If this figure is representative of the market, it’s clear there’s money to be made here.

On the other side of the coin, borrowers who have outstretched themselves financially may struggle with higher repayments if they are not able to remortgage to lower rates. Some lenders have a limited amount of funds to lend at the moment and have been pricing products accordingly, with more expensive deals limiting the andy young is chief executive of The Business Mortgage Companyamount of business they do.

Lenders have also reacted to the liquidity crisis by making significant changes to their criteria, which may restrict the number of qualifying applicants. This could result in distressed sales and together with the slowing housing market, there will be opportunities to purchase properties at discounted prices at auction.

Another way for brokers to take advantage of market conditions would be to offer bridging finance arrangements. Bridging loans provide timely but short-term borrowing and are ideal for those looking to buy discounted properties at auction, with completion typically required within 28 days. But it’s advisable to approach traditional lenders quickly as bridging finance can be expensive over the longer term.