With the soar in property values we have seen over recent years, homeowners commonly ask how this benefits them if they have no intention of selling. It isn’t just the property market that can increase your house value. You may have made home improvements which have increased the value of your home.
Why is property value important?
Property value is an important factor in the mortgage world as mortgage lenders often base the mortgage deals they can offer you on your mortgage debt compared to your property value. This is known as your loan to value or LTV. The lower your loan-to-value percentage, the cheaper the mortgage deals available to you are likely to be. This is because the risk to the mortgage lender is limited the more equity you have in your property as there is less risk of negative equity.
Negative equity is when the homeowner ends up owing more on their mortgage debt than the value of their home.
How do I calculate my property loan to value?
It is easy to calculate your loan-to-value percentage by completing the following calculation:
Mortgage debt divided by property value = loan to value %
Accessing cheaper mortgage deals when remortgaging
Mortgage lenders tend to offer mortgage deals based on your loan-to-value percentage with fewer and more expensive deals being offered for those homeowners whose loan-to-value fall between 90-95%. Homeowners who are looking to borrow less than 60% of their property value benefit from a greater selection of remortgage deals and cheaper deals.
Whilst it can be tempting to stay with your existing mortgage lender for your remortgage, this is not always beneficial. For example, your existing mortgage lender is likely to not complete a new property valuation unless you are borrowing more so you may not automatically benefit from the full increase in your home’s value if you have made significant home improvements since you last secured a mortgage deal. However, you are often able to ask them to complete a new physical valuation but this is often at your own cost.
It is important to ensure you are benefiting from any increase in your home’s value when remortgaging so you can secure the cheapest mortgage deal available which is why we would always recommend speaking to a whole of market mortgage broker like The Mortgage Pride, who can access remortgage deals from over 100 different mortgage lenders.
Releasing equity from my property
Many homeowners have plans for home improvements. This may be a new bathroom or kitchen, an extension or a full renovation project. Or maybe your home needs new windows or doors to help improve the property’s energy efficiency and help reduce your energy costs.
It may be possible to release some of the equity from your property by borrowing additional funds from your mortgage lender. This is commonly referred to as a further advance and can be applied for at any time so you do not necessarily need to wait until your existing mortgage deal ends. However, if you are remortgaging at the same time, you are likely to have more options as you will not be tied to your current mortgage lender for the additional borrowing unless you are happy to pay any early repayment charge that may be applicable for leaving your existing mortgage deal early.
Any increase in mortgage borrowing is treated as a new mortgage application so be prepared to be asked for documents to support your mortgage application such as payslips to evidence your income. Your application for the extra funds will be assessed on the mortgage lender’s lending criteria and affordability assessment at the time of your further advance application so as mortgage brokers, we are often contacted by homeowners who have applied to their existing mortgage lender to borrow more but they have been told they can’t.
Whether looking to stay with your existing lender to borrow additional funds or remortgage fully to a new mortgage lender, seeking the help of an experienced mortgage broker like The Mortgage Pride when considering borrowing additional funds on your mortgage can save you time, energy and unnecessary stress. This is because they are experts in mortgages and match your personal circumstances to the right mortgage lender. They are able to identify if your mortgage application is likely to be successful as they have detailed knowledge of each mortgage lender’s lending criteria and affordability requirements. The Mortgage Pride can leave you feeling confident you fully understand all your options.
Can I only release equity for home improvements?
No, you can borrow additional funds for a number of reasons however many mortgage lenders will not allow you to borrow for business purposes or illegal activities. Examples of why you may want to borrow additional funds include:
- To raise a deposit for a buy-to-let property purchase
- To raise funds towards a mortgage deposit to help your children get on the property ladder
- Paying for your wedding or other major life event
- To buy a caravan or holiday home
- To repay your existing unsecured debts on loans, credit cards and hire purchase agreements
Can I release all the equity in my property when I remortgage?
Unfortunately not. All mortgage lenders will require at least 5% equity to be left in the property in case your property value decreases.
If you are unsure if you are able to borrow money on your mortgage and want to fully understand your options, our friendly mortgage experts at The Mortgage Pride are happy to help so contact them today.
*Your home may be repossessed if you do not keep up repayments on your mortgage.
**You may have an early repayment charge to pay to your existing lender if you remortgage early.
**Think carefully about securing other debts against your home.