Homeowners rush to take out cheaper mortgages as number of remortgaging loans in London hits an eight-year high

• e-mail

Homeowners are rushing to grab a cheaper mortgage amid a glut of cheap deals.

With interest rates at record lows, industry figures published yesterday revealed the number of remortgaging loans in London has soared to an eight year high.

There was also a dramatic surge in Scotland, Wales and Northern Ireland, according to figures from the Council of Mortgage Lenders.

Mortgage experts have said the crippling costs of moving means many households are borrowing to extend their existing homes or to fund other improvements.

With interest rates at record lows, industry figures published yesterday revealed the number of remortgaging loans in London has soared to an eight year high

But lending on house purchases slumped across large swathes of the UK in the latest sign that the housing market is in decline.

The mixed picture is particularly pronounced in the capital, which has been at the centre of the house price boom.

Home buyers borrowed £5.4billion for house purchases in the first three months of the year, down 22 per cent on the same period last year.

They took out 16,700 loans, down 19 per cent.

The fall was even bigger among home movers, with loans declining 35 per cent to £2.7 billion.

This has been partly blamed on the increase in stamp duty on more expensive homes.

But the glut of cheap mortgage deals has sparked a sharp increase in remortgaging– with 14,200 loans, up 8 per cent compared with a year ago.

Homeowners taking out a new mortgage on their existing property borrowed £4.2billion, up 7 per cent on last year.

Across England, home buyers took out 132,000 loans in the first quarter, down 13 per cent on the first quarter last year. They borrowed £25.5billion, down 8 per cent.

But loans for remortgaging totalled £16.7billion, up 18 per cent. This equated to 92,300 loans, up 17 per cent.

The number of loans for remortgaging also jumped 23 per cent in Scotland, 25 per cent in Northern Ireland and 18 per cent in Wales.

But the glut of cheap mortgage deals has sparked a sharp increase in remortgaging– with 14,200 loans, up 8 per cent compared with a year ago

Commenting on the mortgage market in London, Paul Smee, director general of the CML, said the shortage of homes and high house prices was holding back the market.

But he added: ‘By contrast, remortgage activity was at an eight year high in London. Attractive mortgage deals aided by low interest rates appear to have sparked a resurgence in activity that has seen consecutive growth year on year for every quarter for three years.’

Banks and building societies are locked in a mortgage price war as they battle it out to win new customers.

Experts say they have become increasingly desperate to attract new business after the collapse of the buy-to-let market following the introduction of a 3 per cent stamp duty surcharge on landlords in April last year.

Yorkshire Building Society last month launched a record-low 0.89 per cent deal, triggering a price war.

It had already launched a two year fixed rate mortgage charging 0.99 per cent.

Other lenders including Santander, HSBC and Nationwide have also slashed their rates.

One expert suggested the spiralling costs of moving house is also prompting many people to take out a cheaper mortgage to extend or improve their existing home.

The surge in house prices has pushed up the cost of stamp duty as well as legal fees, which can also be linked to the value of a home.

David Hollingworth from mortgage broker London & Country said: ‘Because the costs of moving are so substantial many people will be taking advantage of cheap mortgage deals to improve the place they have already got.’ He added: ‘It is encouraging to see the penny has dropped and that people are taking advantage of the astonishingly low mortgage rates on offer rather than sitting on their hands.’

Despite the boom in remortgaging there have been worrying signs that the housing market has been slowing down.

Separate figures published by HM Revenue & Customs on Tuesday revealed property sales dropped almost a quarter between March and April.

A report by Halifax earlier this month revealed house prices endured their first quarterly fall in more than four years - albeit by just 0.2 per cent – as rising inflation took its toll on household incomes.