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Are Remortgagors subsidising the Purchase market?

Journalist: Justin Moy, Contributing Editor

ended 31. January 2024

Several lenders have adjusted their mortgage rates over the last few days, with increases to the remortgage rates but purchase and FTB rates have either remained the same or even cut further. Barclays and Coventry BS have announced similar changes this week, others will inevitably follow.

Are the remortgage borrowers paying more on their deals to subsidise the purchase market? Perhaps this is a sign that lenders don't want too much remortgage lending given it may be for higher levels of debt consolidation, interest-only borrowing or extended terms, rather than £4£ borrowing?

Or is it that the lenders desperately need a good 2024 of lending, and that they will sell mortgages at a loss to keep the purchase market buoyant, and maintain the momentum so far this year?

Welcome your observations, thoughts and comments on this topic, and about what you have seen in 2024 so far, as that may reflect on the types of applications lenders are receiving, and why they may be tweaking rates for different types of business.

 

12 responses from the Newspage community

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Ranald MitchellVerified
Director at bad credit mortgage specialists Charwin Mortgages
Mortgage lenders are desperately trying to find ways to get more money out there, and attempting to entice the relatively inactive purchase and home mover market. First-time buyers represent new money, so it's unsurprising they are pricing lower, in a bid to boost lending figures. With circa. 1.6M fixed rate maturities this year, if this trend continues, it's not so great for those remortgaging. It seems fundementally unfair having a two tier approach, but in the hard nosed commercial world of banking, they are hell-bent on turning profits.
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Darryl DhofferVerified
Founder at The Mortgage Geezer
With the likes of Coventry and Barlcays increasing remortgage rates - but decreasing purchase rates, could be a strategy to keep the purchase market buoyant, whereas Remortgages have lower aquisition costs and potentially higher borrowing amounts - so does seem a strange tactic - will be interesting to see what other lenders do over the coming days.
Lenders could be wary of debt consolidation, interest - only loans or extended terms, which potentially are higher risk of default, in a potentially volatile economic climate - are we seeing the long term strategies that other lenders will follow this year, and will this be a trend ?- lets hope not for borrowers sakes.
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Justin MoyVerified
Managing Director at EHF Mortgages
Lenders are clearly watching volumes and trends on both remortgage and purchase business, and keen to keep the purchasers onside, making it attractive to buy and keep the property ladders moving. There will be some caution around the manner of remortgages, typically we have seen many look to debt consolidate and stretch the terms to make everything affordable whilst ratres remain high, and that may be scaring the risk teams of the major lenders. This move might be temporary, but to keep positive headlines and momentum in the right direction, its a cautious move.
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Ben PerksVerified
Managing Director at Orchard Financial Advisers
With todays announcement by HMRC that Decembers residential transactions are down circa 20% on the year prior, it's clear to see why Lenders are incentivising those borrowers.

The remortgage market on the other hand has been bouyant and with more than 1.5m borrowers finishing low rates this year, it will continue to be.
There will also be an abundance of clients capital raising for debt consolidation; as they struggle to manage household budgets or for home improvements; as the move to bigger property is now unaffordable.

Remortgages will be a big area of business for Lenders in 2024 and I wish they would price attractively, rather than take advantage. Especially on deals to existing customers.
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Katy EatentonVerified
Mortgage & Protection Specialist at Eatenton Finance
I think this is a reprice as they may have reduced too much on the 5 year products. The lenders can still retain existing clients with rate switches and product transfers. However, they want to stay attractive to first time buyers and home movers which is where the movement is in the market currently.
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Simon BridglandVerified
Director at Charwin Private Clients
The repricing of particular types of product, such as specific deals for purchases or first time buyers is understandable as lenders need to balance the risks that their mortgage books represent by keeping exposure to risk at a minimum. In contrast having too many remortagage applications with debt consolidation represents an increased risk, due to clients perhaps being nearly over indebted or cases requiring term extensions, as many will be upto or into normal retirement age, again representing a higher degree of risk to a lender.
Due to the recent increase in SWAP rates lenders are looking to try and maintain headline grabing rates which would need to be paid for from somewhere, so it would naturally fall with borrowers seeking financial shelter who dont really have many other mortgage options to foot the bill. I dont however think it will last long if early indications are true as the number of enquiries from purchase hungry buyers are greater than last January.
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Elliott CulleyVerified
Director at Switch Mortgage Finance
With the purchase market still recovering mortgage lenders will put more effort into enticing borrowers in this space. They know borrowing in the remortgage sector will be more consistent so they can afford to have higher rates. It's likely there is also some balancing of the books going on right now, as the lenders don't want to become over exposed.
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Gareth DaviesVerified
Director at South Coast Mortgage Services
Given the vast majority of recent business for most advisers is likely remortgage business, it's frustrasting to see rates for this area go up. Is it just a pre-cursor before purchase rates increase, or are lenders trying to keep some headline rates, albeit the take up will be low until the purchase makret really returns.

Service levels for some of the smaller lenders definitely play a part, but when the big-boys such as Barclays make a move, more often follow.
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Richard Jennings CeMAP0
Founder & Managing Director at Richard Jennings Mortgage Services
Lower interest rate priced products for purchases and first time buyers is definitely a tactic employed by lenders to obtain their share of what limited activity there may be in the coming months. Remortgage rates rising does seem counter intuitive given these are often less risky mortgages with a proven track record of payment, typically lower loan to values and a cheaper acquisition cost. Does this mean Lenders are trying to stimulate the housing market by offering incentives to movers, or perhaps cynically Lenders are profiteering from those who are due to remortgage, who already face big payment shocks due to the generalised increase in rates now from a couple of years ago.
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Akhil Mair0
Director at Our Mortgage Broker
The discrepancy in interest rates between remortgage applications and purchase transactions reflects a systemic bias favoring new borrowers over existing homeowners. Lenders exploit the vulnerability of homeowners seeking to refinance by imposing higher rates, effectively penalizing loyalty and financial responsibility. This practice perpetuates inequality in the lending landscape, punishing those who have diligently met their mortgage obligations while rewarding newcomers with preferential treatment.

Lenders please shed more light into why they are implementing alterations that result in higher interest rates for remortgage applications compared to lower rates for purchase transactions
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Scott Taylor-Barr0
Principal Adviser at Barnsdale Financial Management
During my time with a lender, I spent many hours working with the product teams on new products. I cannot recall a conversation that ever touched on one product area subsidising another; each product had to be profitable and stand up on its own merit within the pricing model. For lenders, a remortgage deal and a homemover purchase deal carry similar costs in terms of underwriting time and risk, but there is a difference in that most remortgage deals will carry an incentive package, such as a free valuation, free legals and/or a cash back, so they are then a little more expensive for a lender to offer compared to a purchase mortgage of the same loan size and loan-to-value.
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Gary Bush0
Financial Adviser at MortgageShop.com
It beggars belief that it seems UK mortgage lenders are acting strategically in rating their fixed rates differently for Remortgages and Purchase applications - with the former being released at higher levels. What is the reasoning behind a higher rate for Remortgages, some say it's due to lenders attempting to avoid playing too much of a part in consumers borrowing more to repay other debts to ease monthly budget pressures, and others say it's due to them wanting to try and kickstart the purchase market into action. Our take is that if this an attempt to limit the potential risks from the obvious increase in debt consolidation applications there have been better times to implement this - UK households are on their knees at the moment and struggling to balance their monthly finances.