In my last article, I looked at some of the trends we might be seeing in the residential housing market over the coming year and looked at some of the commentary and analysis from market specialists about what might be around the corner.
You can read that article in the News & Views section of the website, but the broad conclusion that most commentators seemed to draw is that while there will be growth in house values, there is also likely to be some caution in the market as people wait to see what economic trends the global pandemic and our future relationship with the EU bring.
There is no certainty in predicting the future, but if we do see a slowdown in the activity and demand we’ve seen since June (thanks, largely, to the Stamp Duty holiday), then what are the options for those who want to move but are looking for greater economic stability before they take the plunge?
The easiest option, of course, is to simply do nothing and put any plans to move on hold until we’re in a position to be able to accurately forecast trends around employment, base and mortgage interest rates, inflation, and industry growth.
That may well suit some homeowners, but it may not be a viable option for those who have a pressing need to gain more space – perhaps because of a growing family or, in this burgeoning climate of entrepreneurialism and remote working, because the home has also become the workplace.
For those who fall into the category of needing to move but being wary of significantly increasing their borrowing and, therefore, debt, remortgaging might well be the answer.
What is remortgaging
Remortgaging can take a number of different forms.
Sometimes it’s just about moving your existing loan to another lender in order to take advantage of a product with a better interest rate when your current deal expires (depending on the products that may be available to you, staying with your existing lender isn’t always the smartest or most cost-effective move).
When you move your mortgage in this way, you’ll have to fill in a new full mortgage application, providing quite a lot of personal and financial information and documentation to satisfy the lender’s underwriters that you’re going to be able to repay the loan.
The other way to remortgage is to borrow more money against your home in order to release cash to pay down other debt or to fund home improvements.
What are the pros and cons of both types of remortgage?
The obvious benefits if you’re just moving your existing loan to a new lender is that you won’t be increasing your capital loan and depending on the mortgage product you move to you may also end up reducing your monthly repayments because of the equity you’ve built up and the fact the lower-risk loan to value (LTV) that delivers is more attractive to lenders.
For those who are happy in their current home and simply want to fix their deal and their payments and maybe end up slightly better off as a result, this is obviously likely to be the most sensible solution.
The advantages of releasing cash from your home by borrowing slightly more against it are twofold.
First, it gives you a tax-free lump sum to either invest in extending your property or making other improvements to it.
This may have the twin benefit of not only delivering the extra space you need but also potentially increasing the overall value of your home for when you do decide to move, possibly helping you to take a bigger step up the housing ladder.
Second, because you are unlikely to be borrowing at the level you would have done had you been buying a new home, you are mitigating your debt liability a bit more.
You will also be limiting the increase in monthly repayments and, of course, avoiding the additional costs associated with selling your home and buying another one.
With estate agency fees, conveyancing costs, Stamp Duty (when the holiday expires on Match 31st), survey costs, removal fees and ancillary costs, you could be facing £30,000 or more in fees and other costs before you’ve even started house hunting.
Do you have to use any proceeds from a remortgage to pay for home improvements?
There’s no obligation for you to use a remortgage to pay costs associated with improving or extending your property.
However, we would always urge caution if you are planning to offset existing debt against your home. It’s a risky strategy because your property may be repossessed by your lender if you find you’re unable to meet your monthly repayments in the future.
For that reason, we’d always recommend that you speak to a professional mortgage adviser or independent financial adviser before you tie debt into your home.
In the end, whether to move or improve is a personal choice and is dictated by your personal circumstances. Knowing what your options are is the key to making an informed choice about the solution that best fits your own personal circumstances.
So, if your current fixed deal is coming to an end or you’re looking for more space but are worried about taking on the financial burden of a significantly larger mortgage, why not come and speak to our friendly team of advisers and see how we can help you to find the best option for today and beyond?
Oportfolio Limited is an appointed representative of Primis Mortgage Network, a trading name of First Complete Limited which is authorised and regulated by the Financial Conduct Authority
Your property may be repossessed if you do not keep up repayments on your mortgage.
Oportfolio Ltd fees are payable on application. We charge a broker fee for property purchases of £495 and a remortgage/further advance fee of £395. Our product transfer fee is £295.