Anyone that is already the owner of a property, whether they own a family home or a buy to let in Beverley, will likely see it as an investment. It’s more than just giving yourself a home, it’s the largest asset in your name, something you can perhaps later sell or pass to your children and beyond.
The property market is always going through changes and moving up and down. There will be times where you may see property prices at major highs.
During these sorts of peaks, it can be worthwhile taking a look at the remortgage options available to you, as you may find that you are actually able to access more favourable loan to values, and in turn much better rates of interest as well.
The Loan to Value (LTV) ratio represents the proportion of a mortgage loan compared to the market value of the property, expressed as a percentage. For instance, if you buy a property worth £100,000 with a deposit of £10,000 (10%), you will require a 90% LTV mortgage.
LTV ratios are usually divided into tiers by mortgage lenders. The tiers usually range from 60% to 95%, but this can vary depending on the mortgage lender.
A lower LTV ratio can result in access to mortgage deals with more favorable interest rates. For example, let’s say that after a few years, the value of your property increases to £110,000 and the mortgage balance decreases to £80,000.
This results in a new LTV ratio of 73%. If you were to remortgage in Beverley, you would be looking for a 75% LTV mortgage, which should have a more favorable interest rate. However, other market conditions can also impact the interest rate at the time of remortgaging.
Mortgage lenders offer more competitive interest rates for lower LTV mortgages because they pose a lower risk.
To get better interest rates or favorable terms, you need to determine the worth of your property in comparison to what you paid for it. This requires a property valuation.
When you remortgage in Beverley, you switch to a new mortgage lender, as opposed to a product transfer, where you obtain a new mortgage with the same mortgage lender.
Since you are working with a new mortgage lender, they will want to know the value of the property being used as collateral. Typically, there are two types of property valuations: Automated Valuation Model (AVM) and physical valuation.
An AVM, also known as a desktop valuation, is an automated process that cross-references similar properties in the same area to determine the value, without a physical inspection of your property.
On the other hand, a physical valuation involves a professional visiting your home to inspect both the interior and exterior, to determine the true value of the property.
This is particularly useful if you have made any home improvements or extensions that other properties in the area might not have, which an AVM might overlook. If you prefer a physical valuation, you can discuss this with your mortgage advisor in Beverley during your free appointment.
While you can leverage the equity in your home for better deals, you might also choose to remortgage in Beverley to release that equity. People do this for various reasons, such as for funding home improvements.
When it comes to a remortgage in Beverley for releasing equity, it’s important to be cautious. Essentially, you are taking out a new mortgage to replace the old one, but this time, at a higher loan to value. Because of this, your monthly mortgage payments may increase.
The goal for many is that by investing in home improvements, they can increase the value of their property, resulting in a lower loan to value when they remortgage again.
It’s crucial to consider market conditions and have a well-planned strategy when dealing with such a significant financial investment as your home. A mortgage advisor in Beverley can provide the best advice for your specific situation.
In some situations, you may consider remortgaging in Beverley prior to the end of your fixed term. Although remortgaging early is usually ahead of the end of your fixed term, you may have the opportunity to remortgage even earlier, a year before, for instance.
That said, be aware that you may have to pay an early repayment charge (ERC) if you choose to break your contractual terms. Predicting house prices is uncertain, and it may not be financially feasible for you to remortgage early.
Early remortgaging is typically only considered if there is a compelling reason to do so. It is strongly recommended to seek the advice of a mortgage broker in Beverley if you are considering this option.
One example could be during the COVID-19 pandemic when the Bank of England base rate dropped to an all-time low. As a result, people who were set to remortgage in Beverley at the end of their fixed-rate mortgage period had the opportunity to secure these low interest rates.
If you were a year away from this scenario, you might not be able to take advantage of this unless you remortgaged early and locked in a longer term. While this is a specific example from a unique time, it highlights how early remortgaging can lead to financial benefits.
If your home value has increased, it may also be a good time to remortgage early to access lower loan-to-value rates, even though you may have to pay the early repayment charge.
In addition to this, however, you will likely have to pay arrangement, valuation, and solicitor fees for your new mortgage, in addition to the early repayment charge (which may be waived by your current mortgage lender if you opt for a product transfer).
Before making a decision, it’s important to speak with a mortgage broker in Beverley to understand your options and determine whether your savings will outweigh the costs.