Buying a property is an investment, whether you live in the property or rent it out as a buy to let/let to buy, you would hope that the value of the home will increase over time. Not only is this the largest asset that you will own, but they also provide a roof over your head and your family. Generations to come may even benefit from this property if you choose to pass down the property ownership.
The property market is constantly fluctuating, there will be times were house prices slightly dip and sometimes they will soar. Whilst property prices are up surprisingly there are often more favourable rates in the market, therefore, it could be a great idea for you to look at your remortgage options to take advantage of the deals available.
What is a loan to value and why do people remortgage for a better one?
Loan to value (LTV) is the ratio of the mortgage to the property value. Your LTV ratio will be expressed as a percentage, for example, if you are purchasing a property in Hull worth £200,000 and you are planning to put down a 5% deposit (£10,000), you will need to take out a 95% LTV mortgage.
In the mortgage market, LTVs are broken down into tiers/brackets, with the lowest bracket usually being 60% and the highest 95%. Not all lenders will offer 95% LTV mortgages and not all lenders will offer 60% LTV mortgages, it all depends on the lender.
The lower the LTV mortgage that you take out, the more favourable mortgage deals you should be able to access.
In the future, say your £200,000 property has increased in value to £210,000 and your initial £195,000 mortgage balance has come down to £180,000. This means that your new loan to value is 86%.
Because your LTV has decreased, you should be able to access better rates of interest when you remortgage. In some cases, the economy can impact the rates available in the market, so even if your LTV has decreased, unfortunately, the rates may shoot up because of the economy.
The reason why lower loan to value mortgages have a more competitive rate of interest is that you are less of a risk to the lender.
How do I find out the value of my property in Hull?
Just like when your property price was valuated prior to your purchase, the same process will happen again before you remortgage. You won’t need a new property survey, such as a homebuyer’s report or full structural survey, you will just need a mortgage valuation. A mortgage valuation will determine the true value of your home.
When you remortgage in Hull you will be taking out a new product with your new mortgage lender, whereas when you take out a product transfer, you will be taking out a product with a different lender. This doesn’t make a difference to the process. A mortgage valuation will still be carried out with a product transfer.
It’s all a risk game for the lender, they always need to know the true price of the property that they are lending against.
Mortgage valuations can be carried out in two separate ways, the first is by using an Automated Valuation Model (AVM), also known as a desktop valuation. For this valuation, somebody will not come out to your property, they will look at databases to cross-reference similar properties in your local area to determine the value.
The other type of valuation is a physical inspection, where somebody will come and visit the property to look inside and outside to work out the true property value. An in-person valuation can benefit homeowners that have invested in home improvements or extensions, as these additions can add value to the property. AVMs will unfortunately miss these factors. If you would prefer a physical valuation, speak with your mortgage advisor in Hull so that they can mention your preferred valuation method to your lender.
Remortgage to Release Equity in Hull When Your Home Value Has Increased
Whilst having equity within your property can add the benefit of being able to access competitive mortgage products, in some cases you may want to release some of the equity during your remortgage.
The equity within your home is essentially how much you have paid off your mortgage. Using the same example from before, if your current mortgage balance is now at £180,000 (86% LTV from your newly valued £210,000 property) you have 14% equity within your home. Some property owners may want to release a small portion of this equity when remortgaging.
Releasing equity will mean that your LTV will increase though, potentially making your monthly payments increase again. However, if you use the equity for something such as home improvements, you may find that your property value increases and the investment in these improvements will benefit you financially in the future.
When dealing with such a large financial asset, it is important to know the positives and benefits of releasing equity. One of our remortgage advisors in Hull will be more than happy to help you with your remortgage if you need advice.
Can I remortgage early if the value of my home has increased?
Depending on how far you are through your fixed mortgage term, it may be possible to remortgage early.
The downside to remortgaging early is that you may have to pay an early repayment charge (ERC) for doing so. This is because you are breaking your initial contract terms. We will say that you should only remortgage early if you are certain that it is the best thing to do for your financial situation.
In some cases, remortgaging early when your home value has increased can allow you to access a better rate of interest, and paying the ERC could potentially save you money further down the line.
An example of a good time to remortgage mid-way through a fixed term would be during the COVID-19 global pandemic when the Bank of England base rate dropped. Remortgaging early would’ve possibly meant that you could’ve secured a better rate. Despite facing an ERC, if your new rate was significantly lower than your old one, you would end up saving money in the long run and it would prove that the ERC was worth paying.
This niche example is from a strange time in our lives, but it just shows how sometimes remortgaging early can save you money. We always advise speaking with a mortgage broker in Hull prior to remortgaging early, just so you don’t end up losing out on money.
Date Last Edited: 12/06/2023
