Remortgaging homes reaches record level

Record numbers of home owners are switching to more competitive loans, with remortgaging last month accounting for more than half of mortgage lending for the first time, it emerged yesterday.

The "phenomenal" rise in remortgaging reflected intense competition in the home loans market and the continuing enthusiasm among consumers for borrowing against their rising property values, said the Council of Mortgage Lending.

By contrast, lending to first-time buyers last month made up the smallest proportion of the total since records began - which may provide fresh evidence that many have been priced out of the market.

The CML figures show remortgaging accounted for 52% of all mortgage lending in January - up from 39% in December and well above its traditional share of about a third.

Total mortgage lending showed a slight seasonal dip but remained very strong at £18.6bn, compared with £13.4bn in January last year. Remortgaging represented £9.6bn of the latest total.

The CML believes that most people changing their mortgage are probably using the opportunity to raise money to fund spending.

Many are using the cash to pay for home improvements such as new kitchens and extensions, or to buy consumer items such as new cars, holidays and electrical goods.

Some commentators believe levels of mortgage switching could increase further following this month's interest rate cut, which has resulted in several lenders bringing out what they claim are their cheapest deals yet. Last week the Halifax cut rates on its fixed-rate mortgages by up to 0.65% and said its new two-year fix was the lowest it has ever offered.

Meanwhile, only 33% of last month's lending for house purchase was to first-time buyers, the lowest proportion on record. That probably reflected the increased affordability constraints for the group as a result of rising house prices, said the industry body. In addition, the average loan to first-time buyers was £78,500 in January - much lower than the £87,000 recorded in December.

"While too much should not be read into a single month's figures, this may signify a slowdown in activity among first-time buyers in the highest priced areas of the UK," said a CML spokesman.

KPMG, the professional services firm, this week published a report showing that the average life of a mortgage has fallen from around seven years to nearer five. As consumers shop around more and chase the best rates, banks would incur higher costs, it said.

David Bitner at The MarketPlace at Bradford & Bingley said remortgaging rising above 50% would cause concern among many lenders.

"We could see a real change in the way the UK mortgage market works and a shift towards European and American models, where short-term discounts and cheap, fixed rate deals are not widely available."