Correct at 31/12/2023
The property market has been on a bit of a rollercoaster ride in 2022, with the average house price in the UK peaking at £293,992 in August, before falling towards the end of the year.
If your current mortgage deal is coming to an end and you need to remortgage, seeing your property reduce in value can be disconcerting, especially if you only have a limited amount of equity in your home.
Here, we look at whether it's a good time to remortgage, how falling house prices could affect the amount you can borrow, and any considerations to keep in mind.
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Falling house prices aren’t a reason not to remortgage. If you roll onto your lender’s standard variable rate when your current mortgage deal ends, this is likely to be more expensive than the rates you could get if you remortgage.
Fixed remortgage rates have been reducing recently too, which could mean that you’re in a better position to remortgage now than you might have been a couple of months ago.
It’s also worth noting that property prices have only fallen slightly, so if you’ve been in your home now for a few years, its’s likely that the value of your home has increased over that period, which should mean you still have a good amount of equity in it. You may also have paid a decent chunk off your existing mortgage over this period, which may have reduced your loan to value (LTV) meaning you can access better mortgage deals.
For example, when you first took out your mortgage, you might have paid a 20% deposit and borrowed 80% of the property value. If property prices have risen since you bought, or you’ve paid off some of your mortgage, it might now be equivalent to 75% or even 60% of the house price. This means you now effectively have as much as 40% equity in the property and could get better terms when you remortgage.
You can start looking for a new mortgage deal up to six months before your current deal finishes – and our rate check service lets you check interest rates again before you complete on your remortgage.
Your LTV will determine which mortgage rates you have access to, so if you’re on the edge of a particular bracket and prices continue to fall, this could push you into a higher LTV. If you’re worried about falling into a higher LTV bracket due to slowing property prices, and you’ve got a while to go before you need to remortgage, you might want to consider overpaying your mortgage.
Even overpaying by a small amount can have a significant effect on your mortgage balance over time. For example, someone with a £150,000 repayment mortgage with 20 years remaining at a 4.5% mortgage rate would pay £6,767 less in interest and reduce their mortgage term by one year and seven months if they made £50 monthly overpayments.
Most lenders will allow you to overpay up to 10% of your mortgage each year without penalty, but always check the terms of your specific deal as sometimes this can vary.
There are several different criteria lenders will look at when deciding how much to lend you when you remortgage. The two main things they will want to establish are that you’ll be able to comfortably afford your mortgage payments both now and if interest rates continue to rise, and that you won’t miss any repayments. The higher your outgoings are, the lower the remortgage amount you’re likely to be offered, so it’s worth looking at ways you might be able to reduce these before submitting your remortgage application. You can use our remortgage calculator to get an idea of how much you can borrow.
When assessing how much to lend you, lenders will also want to know more about your property and will carry out a remortgage valuation to see whether it’s worth what you think it is. If the surveyor thinks the property is over-valued or its price has fallen, you may be able to borrow less than you’d hoped. Our house price calculator can give you an idea of how much your house is currently worth and how much its value has changed over the past year.
If you’re not sure which lender to choose, or whether staying with your current lender might be your best option, it can be a good idea to seek advice from a mortgage broker. Here at L&C we have plenty of experience dealing with a wide range of lenders and will therefore be able to advise which will be most likely to accept your application. Find out more about remortgaging at our how to remortgage hub, which has lots of guides and calculators covering everything you need to know about remortgaging.
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