This fall was mostly driven by a seven-point reduction in the remortgage approvals indicator, stemming from slower growth in average approvals values.
The borrowing costs and consumer sentiment indicators also fell by two and 1.2 points respectively, largely due to the spread between the borrowing costs of lenders and the costs passed on to the borrower widening, and fewer borrowers opting to increase the size of their loans.
The remortgage approvals indicator fell to 63.2, following its second highest reading on record of 70.2 in Q2 2021.
The fall was due to the average value of approvals. While the average approval value continued to rise in Q3, this growth slowed and fell below that of house prices, caused the ratio of approval value to house prices to fall from 88% to 86% in Q2.
However, the small fall in the value of approvals was balanced out by a rise in the number of approvals, up by 14% on a quarterly basis and 18% on an annual basis.
The borrowing costs indicator dipped by 2 points in Q3 to stand at 69.1.
This decline was due to a slowdown in the narrowing of ‘spreads’, which is the difference between the rates charged by lenders to borrowers, and their own funding costs.
The homeowner equity indicator rose by 8.9 points in Q3 to stand at 86.7.
This was not only a record high, but the steepest increase in the indicator since Q3 2020 when the UK housing market bounced back from a near standstill.
House price growth increased in Q3 ahead of the close of the stamp duty holiday at the end of September, with the annual house price averaging 6.2% across the quarter, compared to 4.7% in Q2.
The borrower sentiment indicator fell for the first time in a year, albeit by only 1.2 points.
This brought the indicator to 60.8 points, close to the borderline with neutral territory.
This drop was driven by a fall in the proportion of borrowers choosing to increase the size of their loans, with 48.8% deciding to do so, compared to 52.0% in Q2.
Nick Chadbourne, chief executive at LMS, said: “Despite small drops in the borrowing costs and borrower sentiment scores, all indicators remained positive in Q3, signalling the continued health of the remortgage market.
“The marginal fall in the index’s overall score is not cause for alarm, but a sign that the market is gradually stabilising following a year of heightened activity.
“The homeowner equity indicator has continued to rise, which was good news for homeowners as it meant increased equity in their property, putting them in a favourable position when remortgaging.
“Despite this, consumer confidence fell due to the rising cost of living and scepticism about continued low interest rates on offer.
“Healthy activity levels are set to remain in 2022 as 2-year fixes taken out when the property market reopened begin to expire.
“This will be paired with a rise in tech capabilities that have emerged because of the pandemic, including our planned delivery of the first fully automated remortgage cases by the end of 2022.
“This will set the scene for a more efficient remo market, with the ability to process more cases quicker.”
