Homeowners hoping to remortgage may soon face a shock when they explore their remortgaging LTV’s or loan-to-value levels.
Remortgaging LTV’s are set to nose dive if all the forecasts of a UK housing market recession turn out to be correct.
So if you’re thinking of remortgaging, the time to act is sooner rather than later.
The lower your remortgaging LTV, the better the remortgaging deal you’re likely to be offered.
What is my Remortgaging LTV?
To understand why, it’s important to know that lenders set their remortgaging rates according to different remortgaging LTV bands. The lower your remortgaging LTV, the better the rate you’ll get.
This is because you represent less of a risk to the lender than a borrower with only a small deposit. So if you’ve got a low LTV, you’re much more attractive as a customer to lenders.
If you’ve enough equity in your home today to have a 60% LTV, you’ll be offered a lower remortgage rate than someone with a 80% LTV.
Loan-to-value is all about how the size of your remortgage compares to the overall value you hold in your property. In other words it’s the proportion of the value of your house your remortgage covers.
Need some figures to understand this? Imagine that you would like to take out a remortgage of £100,000 on a property worth £200,000. Then the LTV of the remortgage you want is 50%. So the amount you are borrowing is 50% of the value of your home.
Normally, in a buoyant economy, your LTV will slowly drop as you pay off your mortgage. This happens as your monthly payments eat away at the size of your loan and house prices hopefully increase.
What’s happening to UK House Prices Today?
LTVs are in the spotlight right now. This is because they’re not just affected by the amount you put into a house. They’re affected by house prices too.
Your home is an asset into which you’ve invested. But it’s an asset whose price moves. And if the prognosis of many experts is correct, that’s set to be downwards…
No-one can predict exactly what will happen to UK house prices. But one fact is certain. They suffered their biggest monthly fall for six years in August.
The steepest drops have been in the London area but the general trend is UK-wide.
There are gloomier predictions from Bank of England governor Mark Carney. He has said that in the event of a no-deal Brexit, house prices could fall by 25-35% over three years.
The FT says the extent of the change will depend on the yet-to-be-determined nature of Brexit.
If that happens, based on the experience of the 2008 financial crisis, this could have long-term repercussions.
Then house prices tumbled and the average UK property value dropped 20% in just over a year. It took six years for prices to return to pre-crash levels.
If you’re considering remortgaging, in the current climate the best advice could be to get your application in sooner rather than later.
This is especially if you’ve dropped onto your lender’s SVR (standard variable rate). Then it’s a no-brainer. For most people in this scenario, remortgaging to a new product could save thousands of pounds. Secure a low-value fixed rate remortgaging deal, and you’ll have budgeting security too.
So what’s our top tip? Get your property valued now before the slow-down gets any worse.
If you don’t, you may find your home’s worth far less than you hoped. That means a higher LTV and that’s likely to mean far less rosy remortgaging prospects.