Low-rate loans lead to surge in remortgaging

The number of mortgages taken out for house purchase has fallen by 24% since March last year, but a huge increase in remortgaging meant that they accounted for over two-thirds of last month's mortgages, according to the British Bankers' Association (BBA).

Figures released by the BBA show that remortgaging soared by 53% from March 2002 with a record 89,999 loans approved last month. There was also a 41% year-on-year rise in consumers releasing equity from their homes with 86,858 approvals, likewise the highest figure on record.

These figures come a day after property website Hometrack declared that its house price survey for April indicated the first overall fall in house prices since November 2001. The significant fall in house price purchases from the BBA figures suggests that would-be buyers have become wary about entering the market, while homeowners are putting off a move and taking advantage of low-rate loans to finance their existing purchase instead.

Overall, a total of 251,000 mortgages were approved during March, 24% more than in February. "Demand for mortgages remained strong in March, but it was not driven by the housing market, where loan values, and consequently prices, appear to be stabilising," said David Dooks, director of BBA statistics.

"Remortgages and equity release accounted for over 70% of all loans approved in the month and they continue to support consumer expenditure, although credit card borrowing was stronger in March than for some time."

Total mortgage lending by BBA members was ?12.85bn last month, 10% higher than February's figure. Once redemptions and repayments were taken into account, net lending rose by ?4.84bn, slightly below the average of ?5.15bn for the previous six months.