Remortgaging boosts home loan market

British homeowners borrowed ?270bn in mortgages during 2003, compared with ?218.6bn in 2002, according to a report published today by the Council of Mortgage Lenders.

Remortgaging accounted for a substantial 45% of the total figure; people borrowed some ?120.8bn to remortgage their properties last year, compared with ?80.6bn in 2002.

A further 45%, ?121.8bn, was borrowed for house purchase. However, the soaring house prices of the past few years (the average asking price in England and Wales now stands at over ?170,000, according to a recent report) continue to prevent first-time buyers from entering the market. Only 29% of purchase home loans in 2003 were for first-time buyers, down from 38% in 2002 and well below the long-term average of 50%. On average, first-time buyers borrowed 2.91 times their income in December 2003, compared with 2.71 in the same month in 2002.

"Total lending managed to increase by nearly a quarter compared with the previous year, and has more than doubled in three years," said Michales Coogan, CML director general. "But the bulk of this borrowing has come from the remortgage market, as lending for house purchase has suffered from affordability constraints created by rising house prices."

According to a survey by Alliance & Leicester, 50% of people who remortgaged did so in order to get a better deal. However, a separate report published by lender Paragon turned up contradictory results, finding that one in five remortgages are taken out to raise equity to fund the purchase of a second home.

Managing director of Paragon, John Heron, said: "Buoyant house price inflation over the past couple of years has meant that many home owners have built up significant equity in their homes. As a result, an increasing number are taking the opportunity to remortgage their properties in order to release equity to buy second homes, either in the UK or abroad."

The British Bankers Association said today that mortgage lending had increased by ?5.4bn in December 2003, while a report published today by the Building Society Association showed that net lending through building societies was some 70% higher in 2003 compared to 2002.