Remortgaging When House Value Has Increased

Property values can fluctuate in an unpredictable manner. However, when it's moving in your favour, you're going to want to take advantage. One way you can do that is by remortgaging when your house value has increased.

In this insight, we aim to provide information on why it's good to remortgage if your house value has increased.

Key Takeaways

• Equity represents the percentage of your property that you genuinely possess, calculated by subtracting the mortgage balance from the house value.
• An increase in house value and Equity can lead to better mortgage deals, lower rates, and the opportunity to release equity or raise capital.
• To benefit, evaluate your property's value accurately, consider the loan-to-value ratio, weigh the costs and benefits of early remortgaging, and compare deals from different lenders.
• Engaging a mortgage adviser can provide access to exclusive deals, save time, and offer expert guidance tailored to your specific needs.

Remortgaging When House Value has Increased

Remortgaging when house value has increased can benefit you. It allows for greater mortgage options, lower interest rates, and the option to release equity for things like home improvements or debt consolidation. Consider how your loan-to-value has changed, compare deals, and seek mortgage advice for tailored recommendations.

What is Equity and How Do I Calculate It?

Before we delve deeper, let's first address what equity is. In simple terms, equity is the percentage of your property that you genuinely possess. For instance, if your house is valued at £500,000 and you have a mortgage worth £400,000, your equity is £100,000. This equity can increase as you progressively repay your mortgage or if your property's value increases.

To calculate your equity, you need to know your property's current market value and the outstanding balance on your mortgage. Subtract the mortgage balance from the house value, and you have your equity.

How Does The Value of Your House affect Remortgaging?

It's simple. An increase in your house value means an increase in your equity. This increased equity can be a gateway to better mortgage deals or even additional funds.

When you take out a mortgage, the loan-to-value (LTV) ratio compares your loan amount to the property value. A lower LTV is preferred for better rates. For example, if your home value increases from £150,000 to £200,000, remortgaging for £120,000 would result in a 60% LTV, qualifying you for favourable deals. Alternatively, you can remortgage for a higher amount and receive cash.

Why Consider Remortgaging?

There are several reasons why homeowners consider remortgaging when their house value has increased. Here are some common ones:

Lowering Mortgage Rates

A significant increase in your property's value, especially in sought-after locations, can put you in a favourable position to negotiate lower mortgage rates. This step means reduced monthly repayments which can be a significant relief for many homeowners.

Take out Equity

A rise in house value also presents an opportunity to remortgage to release equity. You can take out a new mortgage, cover the balance of your old mortgage, and withdraw the extra as cash. You could also take out a larger mortgage to release more cash, although this might come with higher interest rates.

For instance, let's say your home is valued at £300,000, and your current mortgage balance is £200,000. If you decide to remortgage for £250,000, you would pay off the existing mortgage and have £50,000 in cash. This would result in an LTV ratio of 83%, unlocking funds for various purposes.

Many lenders will only allow you to take a loan to value of up to 90% of your property. You will also need to pass the affordability checks to borrow the additional funds.

Should You Remortgage When House Value goes up?

Before you consider remortgaging, it's crucial to accurately evaluate your property's current market value. You can use an online valuation tool for an estimate. However, for a more accurate valuation, consider engaging a professional estate agent or surveyor who understands the property market well.

Just because your house value has gone up does not mean you should always remortgage. Remortgaging early before your mortgage term ends can come with potential costs.

It's crucial to weigh the benefits against these costs. Costs may include early repayment or exit charges, especially when switching lenders. New mortgage arrangements may also come with fees like valuation and solicitor fees. However, the benefits of lower interest rates or extra cash might outweigh these costs. 

A mortgage adviser will always be happy to talk through your scenario if you want to make sure you're in the best position you can be with the benefit of your house value increase.

How Do You Compare Remortgage Deals?

When remortgaging, it's essential to explore all your options. While staying with your current lender might seem the easiest route, they might not offer the best deal. Consider comparing remortgage deals online or using a mortgage broker to get a realistic view of potential savings or how much money you could release through remortgaging.

Using a Mortgage Adviser

The remortgaging process can be complex, and some lenders may reject your application if you do not meet their criteria. Engaging a mortgage adviser can offer you many benefits. They can access exclusive remortgage deals, save you time by researching the mortgage market on your behalf, and offer expert advice to meet your remortgaging needs.

How Do I Find Out What My Home Is Worth When Remortgaging?

When determining the value of your house for remortgaging purposes, there are several options you can consider:

Online Valuation Tools:

Use reputable online valuation tools that provide estimates based on data such as recent sale prices of similar properties in your area. Keep in mind that these are estimates and may not reflect the exact value of your house.

Property Websites:

Explore property listing websites to find similar properties in your area that are currently for sale or have recently sold. This can give you an idea of the price range in your locality.

Consult a Estate Agent:

Reach out to local or an online estate agents who have expertise in your area. They can provide a professional valuation based on their knowledge of the market and recent property sales.

Contact Your Mortgage Lender:

Reach out to your mortgage lender directly to ask if they offer valuation services or can provide guidance on how to determine the value of your house for remortgaging purposes. They may have specific requirements or preferred methods for valuation.

Remember, the value of your house can fluctuate based on market conditions, so it's important to regularly reassess its value when considering remortgaging. Additionally, keep in mind that the final valuation for remortgaging will be determined by your chosen lender, who may have their own valuation process.

How Long Does it Take to Remortgage and Release Equity?

Remortgaging your home usually takes around 4 weeks, but the timeframe can vary. If you switch to a new lender, they'll assess your affordability, check your credit, and value your home. The possible bottleneck in completing sooner comes with the issue of conveyancing. If you remortgage to a new lender, a new set of legal work will need to be completed and this can take time. Many lenders cover the cost of the legal work or offer an incentive to help contribute to it. For more information on remortgaging and the legal work involved, read our insight: Do I need a Solicitor to Remortgage?

Alternatively, you can opt to stay with your lender and arrange a product transfer, alongside a further advance. This just means, you pick a new deal and borrow some additional funds at the same time. Without further borrowing, a product transfer could be processed online in a day.

Next Steps of Remortgaging When Your House Value Has Increased

Remortgaging when house value has increased can offer a multitude of benefits. Whether you're looking to secure lower mortgage rates, raise some capital, or simply reassess your financial situation, it's a strategy worth considering. Remember to do your due diligence, consult experts where necessary, and ultimately make a decision that benefits your financial future. If you're unsure where to get started, complete the Sunny Fact Find for Mortgage advice.