In oblique contrast to Rightmove’s report today of increasing activity in the housing buying market, Datamonitor says the UK mortgage market is fuelled by remortgaging and warns of increasing mortgage debt.

The slowing growth in gross advances for house purchases can be largely explained by a decline in first time buyers who are put off by the current high prices, reports the market analysts, Datamonitor.

According to Datamonitor's Karina Purang, it is the growth in remortgaging that is currently driving the mortgage market as rising house prices have encouraged consumers to unlock the equity in their homes.

With soaring house prices, property owners have seen a consequent rise in the value of their property, and many homeowners have been encouraged to cash in on the housing boom by unlocking the equity in their home to repay other debts, or for activities such as home improvements or buying a new car.

Growth not sustainable

The huge growth in gross mortgage lending witnessed in the last two years will not be sustained, primarily because growth in house prices is forecast to fall back to a sustainable level between 5% and 7% in the forthcoming years.

It is remortgaging, rather than loans for house purchase, that is driving the UK mortgage market. A total of GBP102.2 billion was advanced for remortgaging from January to October 2003 against GBP65 billion for the same period in 2002, representing an increase of 57%.

Remortgaging now accounts for over 45% of total gross advances, compared to 37% in 2002, and only 25% in 1999.

There is no doubt that the increasing trend in remortgaging is contributing to the fierce competition in the mortgage market by 'forcing' mortgage providers to continuously improve their mortgage products portfolio in order to retain customers. Remortgaging has grown in importance only in recent years, but it is certainly here to stay, mainly because the UK mortgage market is largely dominated by variable rate mortgages rather than fixed rate.