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Remortgaging When House Value Has Increased in London

Owning a property, be it a family home or a buy to let in London, is considered an investment that goes beyond just providing a roof over your head. It is a valuable asset that can be sold or passed down to future generations.

Given the constantly fluctuating property market, there may be times when property prices rise significantly. During these peaks, it may be wise to consider your options for a remortgage in London.

By doing so, you may be able to access more favorable loan to value ratios, resulting in better interest rates and terms.

What is a loan to value and why do people remortgage in London for a better one?

Loan to value (LTV) is a percentage of the property’s open market value, versus the amount of mortgage you are looking to borrow. For example, if you purchase a property for £100,000 with a deposit of £10,000 (10%), you will require a 90% LTV mortgage.

Mortgage lenders offer different brackets or tiers of LTV, typically ranging from 60% to 95%. The LTV brackets available vary depending on the mortgage lender.

Lower LTV mortgages generally offer more competitive interest rates. For instance, if you had a lower LTV, such as 73% in the example above, you might be able to obtain a more competitive interest rate when remortgaging in London.

Other factors, such as market conditions, can also affect the interest rate when remortgaging. The lower the LTV, the less risk you pose to the mortgage lender, which is why lower LTV mortgages usually offer more competitive rates.

How do I find out the value of my property?

To access better rates and terms when remortgaging in London, it’s important to determine the current value of your property.

This can be done through a valuation, which is necessary when switching to a new mortgage lender. The mortgage lender will want to know the value of the property they will be lending against to assess their risk.

There are two types of property valuation: an Automated Valuation Model (AVM) or a physical valuation.

An AVM is a database that cross-references similar properties in the area to determine the value, while a physical valuation involves an inspector coming to your home to assess its true value.

If you’ve made any home improvements or extensions that an AVM could miss, a physical valuation would be more accurate. You can discuss this with your mortgage advisor in London during your free appointment.

Remortgage in London to Release Equity When Home Value Has Increased

Whilst the equity that you have sitting in your home can oftentimes be utilised as a means of accessing better deals, you may instead want to take out a remortgage in London, so that you can release the equity. There are lots of reasons people do this, such as for making home improvements.

When it comes to taking out a remortgage in London so that you can release equity, you must carefully plan what it is you’d like to do. In virtually all circumstances, you’ll have a new mortgage to replace the old one (that is how a remortgage works), whilst moving onto a higher loan to value.

Because you’ll be moving onto a higher loan to value, you’ll find that you are almost guaranteed to have higher monthly mortgage payments.

Many will hope that their investments in their home, all the home improvements that have been carried out, will see the value of the home increase. This means that when the time comes to remortgage in London once more, your loan to value should be lower again.

It really all comes down to gauging the markets, making sure that everything is incredibly well thought out, especially with it being for such a large investment and your home. A mortgage advisor in London will review your plans and advise on the best steps for you to take.

Can I remortgage in London early if the value of my home has increased?

In some instances, you may find that you are wanting to take out a remortgage in London early. Whilst enquiring about your options before your fixed-term ends is technically early, you may possibly be able to remortgage in London even before that.

The downside to taking out a remortgage in London early, is that you will usually find yourself having to pay an early repayment charge (ERC), due to breaching your contractually agreed terms on your mortgage deal.

House prices can be quite difficult to gauge, as the market is ever-changing and always unpredictable. Whilst you may think it could be a good idea for you to do this, it may not actually be financially viable for this to be achieved.

People will generally only leave their mortgage early if there is a genuinely good reason for this to be done. This is why speaking to an expert mortgage broker in London is highly recommended before doing so.

A good example of where this would apply, could be the COVID-19 pandemic. During this time period, the Bank of England base rate dropped to records lows. People who were set to leave their fixed-deal around that time, would benefit from their remortgage in London, inheriting lower interest rates.

That said though, if you were still a year away from being able to remortgage in London, you might have looked to remortgage early, to make sure you can fix-in onto those lower interest rates for longer, to reap the benefits of them.

This is quite a niche example, however, as times were very strange and mortgage lenders were pulling a lot of their products, which caused limitations to mortgage options. Even with that in mind, it shows how remortgaging early could actually be helpful.

If you have seen your home rise in value, that too could be a good time to take out an early remortgage in London, as the general costs may be greatly outweighed by the costs saved from you being able to access a much lower loan to value.

Once again, you’ll have to factor in a likely early repayment charge (a product transfer could see that waived), as well as your possible arrangement fees, valuations fees and solicitors fees on a new mortgage.

If you are able to demonstrate that your savings will definitely be able to outweigh the fees spent, then this may be something you could look at doing. As always though, it is recommended that you have a chat with a mortgage broker in London, in order to understand your options.

Date Last Edited: April 6, 2023

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