Can You Remortgage if House Prices Drop?

The housing market can be unpredictable, with prices sometimes rising and other times falling. If you're a homeowner considering remortgaging, you might be wondering, "Can you remortgage if house prices drop?" The short answer is yes, but it's not always a straightforward process.

This insight aims to shed light on this topic, offering guidance and advice to make the remortgaging process smoother and more understandable.

Key Takeaways

• Remortgaging is possible even if house prices drop, but it may be more challenging to find favourable deals.
• Factors to consider include your loan-to-value (LTV) ratio, equity, affordability, and creditworthiness.
• Costs and benefits should be weighed, and professional advice from a mortgage advisor can be valuable.
• Overpaying your mortgage, improving your property, monitoring your LTV ratio, and seeking professional guidance are recommended steps in a falling market.

Can You Remortgage If House Prices Drop?

Yes, you can remortgage if house prices drop. It might be harder to find good deals because the value of your property is lower. Make sure you can afford the new mortgage and have a good credit history. Consider the costs and benefits and ask for help from a professional to understand your options.

If house prices go down and you want to remortgage, there are a few things to think about. The first is your loan-to-value ratio, which is the percentage of your mortgage compared to your property's value. A higher ratio can make it harder to find good remortgage deals.

Your equity, which is the difference between your property's value and your mortgage balance, may also be affected by lower house prices. Lenders consider equity when offering remortgage options.

They also look at your ability to afford the new mortgage payments and your credit scoring. Don't forget to consider the costs of remortgaging, like fees, and compare them to the benefits, like lower interest rates or extra money.

It's a good idea to get advice from a mortgage adviser who can help you understand your options and find lenders who might still offer good terms even with lower house prices.

Understanding Remortgaging

Remortgaging entails switching your current mortgage to a new deal, either with your existing lender or a different one. The primary reasons homeowners consider remortgaging are to save money by securing a lower interest rate, to raise money by remortgaging to release equity from their home, or to pay off a mortgage more quickly. However, what happens if your property's value has decreased since your last valuation?

The Impact of Falling House Prices on Remortgaging

When house prices fall, it can complicate your remortgaging plans. A decrease in your property's value can impact your Loan to Value (LTV) ratio, which is a crucial factor lenders consider when approving a mortgage. This ratio is the amount of your mortgage compared to your home's value. If your house price drops, your LTV could increase, potentially affecting the mortgage rates available to you.

Let's illustrate this with an example. Suppose you initially purchased your house for £200,000 with a 20% deposit, resulting in an 80% LTV. If your house's value drops to £180,000, and you still owe £160,000 on your mortgage, your LTV would now be around 89%. This could potentially push you into a higher LTV bracket, affecting the deals you can access.

However, a drop in house prices doesn't automatically disqualify you from remortgaging. It's essential to remember that the housing market fluctuates, and a short-term drop in prices doesn't erase the equity you've built up over the years.

Calculating Your Home's Equity

Your home's equity is the difference between its current market value and the amount remaining on your mortgage. It increases as you pay down your mortgage and if your home's value appreciates. However, if your home's value decreases, you could end up with less equity or even negative equity.

Negative equity occurs when your home's value drops below the remaining balance on your mortgage. This can be a challenging situation, particularly if you're considering selling or remortgaging your home. However, if you're not planning on moving and can comfortably meet your mortgage repayments, negative equity might not impact your day-to-day life.

Can You Remortgage with Negative Equity?

Remortgaging with negative equity is often more challenging since lenders may consider you a higher risk. However, it's not impossible. Some lenders offer negative equity mortgages, allowing you to move your negative equity to a new mortgage. But be aware; these types of mortgages often come with higher interest rates and may result in you paying more in the long run.

Preparing to Remortgage in a Falling Market

If you're contemplating remortgaging and the market is less than favourable, there are steps you can take to improve your chances:

Overpay Your Mortgage

If your mortgage terms allow, consider overpaying your mortgage to reduce your LTV ratio and build equity.

Improve Your Property

Adding value to your home through renovations or improvements can help offset a market decline.

Check Your LTV Ratio

Keep a close eye on your LTV ratio as it can impact the mortgage deals available to you.

Speak to a Mortgage Adviser

A mortgage broker can provide personalised advice tailored to your circumstances and guide you through the remortgaging process.

Should You Remortgage If House Prices Drop?

The decision to remortgage when house prices drop should be based on your individual circumstances. If you have built up enough equity in your home and can secure a better mortgage rate, remortgaging could be a wise financial move. However, if you have little equity or are in negative equity, it might be more beneficial to wait until your home's value increases.

Navigating the Market and Falling House Prices

Falling house prices can make the remortgaging process more complex, but it doesn't make it impossible. By understanding your home's equity, keeping a close eye on your LTV ratio, and seeking advice from a mortgage adviser, you can navigate the remortgaging process with confidence, even in a falling market. Remember, everyone's situation is unique, so make sure to consider your personal circumstances and financial goals before making any decisions.