Increase in mortgage equity releases as homeowner confidence grows

The latest monthly report from property services company LMS has suggested that lower mortgage rates and growing confidence among homeowners are fuelling a rise in the amount of equity being released from homes through remortgaging with the same lender.

Further research shows that the equity released is being used to consolidate existing debts such as credit card balances, as well as paying for home improvements to properties. The average loan remortaged has also risen from £121,000 in the first quarter of 2010 to the current figure of £150,000. The amount of equity being released from remortgages has also spiralled from an average of £14, 300 in early 2012 to today’s average of £22,600.

Analysts say the trend reflects growing confidence among homeowners about the housing market and the economy – and the current level of equity release through remortgaging is also the result of existing homeowners having more access to low-rate mortgages. LMS used its monthly conveyancing data with a separate survey to analyse current borrowing among existing homeowners. The survey revealed that one-fifth of homeowners are borrowing to fund home improvements – and 9% intend to consolidate debts such as credit cards and other loans. However, the total number of homeowners remortgaging to take advantage of the existing low mortgage rates remains stable, with homeowners remaining with the same lender rather than switching mortgage lenders for a better rate.

Mortgage rates for existing homeowners remain low and the pre-credit crunch trend for remortgaging and consolidating debts using equity release with a new lender has tailed off, LMS data suggests. This also means that the average length of a mortgage has increased from the 2008 figure of three years and one month to today’s average mortgage period of four years and 10 months.

This may be the result of discounted or fixed mortgage rates for the initial mortgage period covering a longer time period – in 2008 special rates might apply for the first two years of a mortgage, whereas today the initial period for discounted rates or fixed mortgage rates is more likely to be the first five years of a mortgage.

Tags: homeowner confidence grows, LMS, mortgage equity, mortgage equity releases, mortgage lenders