Overall, the property service firm’s Remortgage Index fell 5.1 points to 65 in the first quarter, its lowest reading since the first three months of 2021, but the survey says the market, “remains in firmly positive territory”.

The survey, conducted with the Centre of Economics and Business Research, shows the overall health of the remortgage market and tracks changes in four key indicators – volume and value of remortgage approvals, remortgage borrowing costs, homeowner equity value and borrower sentiment.

Each indicator is scored between 0 and 100, with scores between 40 and 60 considered neutral, a score below 40 considered negative, and a score over 60 seen as positive for the industry.

The fall of the overall index was largely due to 15.9 points fall in the remortgage approvals indicator to 50.2, marking it out as the sharpest quarterly fall in the indicator since the second quarter of 2011.

The survey says that the ratio of average approval values to house prices fell by 2.1% year-on-year, the sharpest contraction since the third quarter of 2019.

It adds this “was exacerbated by a further slowdown in the growth of the number of remortgage approvals”, which grew by 8.5% per quarter, down from 10.2% in the final quarter of 2021,

“Yet, as these figures show, the number of mortgage approvals still grew and are now only 1.1% below their level two years ago, showing a strong recovery following the Covid-19 pandemic,” the index says.

This came as the homeowner equity indicator was the only indicator to rise in the period, lifting by 8 points to 100.

“This is the highest possible reading and constitutes a third consecutive quarterly increase,” says the report.

It adds: “House price growth increased in the first quarter despite higher mortgage rates, with annual house price growth averaging 8.6% across the quarter, up from 7.3% last quarter. This is likely due to buyers bringing forward purchases to lock in lower borrowing costs.

“Those looking to remortgage can expect housing demand to soften from the second quarter onwards, as mortgage rates rise sharply and the cost of living crisis intensifies.”

The borrowing costs indicator fell by 4.7 points to 70.1 points, almost completely reversing the 5.7 point increase in the final quarter of last year, following three successive the Bank of England base rate rises in the period – and five to date since last December.

The report says: “This reduction was due to three successive Bank of England base rate hikes between December and March, which saw the average 75% loan-to-value mortgage rate, for both two-year and five-year fixes, increase from 1.6% to 2.1%, causing the sharpest rise in the 12-month rolling average of mortgage rates since the first quarter of 2019.”

The borrower sentiment indicator fell for the third consecutive quarter, by 1.4 points to 57.2 points, its lowest value since the third quarter of 2020.

The survey adds: “Worsening remortgager sentiment placed further downward pressure on the indicator as the number of borrowers choosing to increase the size of their loans in the first quarter fell to 43% to the lowest it has been since the third quarter of 2020.

“The fact that fewer borrowers are choosing to take out a larger loan in the first quarter suggests a decline in consumer confidence due to the rising cost of living and cost of borrowing, which are likely to further weigh on remortgager sentiment over the coming months.”

LMS chief executive Nick Chadbourne says: “While the majority of indicators dropped during the first quarter, the overall market indicator score remained positive in the first quarter of the year, with the homeowner equity indicator reaching the highest possible reading.

“The drops were to be expected given the cost of living crisis and repeated Bank of England base rate increases since they impact the overall buoyancy of the market. Price growth in the market acted as a buffer, preventing these dips from being more substantial.

He adds: “Continued house price growth and reluctance among lenders to pass on rate increases to the customer are encouraging, and show that brokers and lenders can help sustain the market while longer-term solutions are put in place.

“The focus should continue to be on five-year fixed-rate mortgages for borrowers, so they can lock in lower costs for longer. With lenders working to make sure long-term products are available and brokers signposting them for their clients we can ensure that we support the market as much as possible through the ongoing economic uncertainty.”House prices lift, remortgage approvals dip: LMS