Lower loan to value ratios give UK property owners better re-mortgage options, research shows
Between the high and low points of the UK real estate market the value of properties fell month on month eroding deposits and equity held by owners in their homes, new research shows.
For those homeowners not interested in selling, it is often said that house price fluctuations are largely irrelevant, but how much a property is worth, regardless of whether they want to sell or not, is always a hot topic around dinner tables.
It is also highly relevant for those seeking to re-mortgage their properties as how much they can obtain is down to the amount of equity that they have.
Now research from HSBC shows just how relevant house prices fluctuations really are.
Between September 2007 and April 2009, the high and low water marks for UK house prices according to land registry data, values of properties fell month on month, eroding deposits and equity held by Britons in their homes.
Even though lenders have always offered tiered mortgage rates to customers with differing levels of equity in their home, the recent environment of house price volatility and the associated risk of lending to high loan to value customers has created a widening gap between the rates on offer to homeowners with large and small deposits.
So whether you are looking to sell your home or not, in the current environment, the amount of equity you hold in your home is more important than ever, especially for homeowners wishing to remortgage.
HSBC looked at house purchases in April 2006, 2007 and 2008 and analysed what impact fluctuating house prices have had on the equity held by average purchasers in these months.
Looking at both April 2009, the low point of house prices, and latest house price figures, analysts examined what impact falling prices have had on homeowners equity portions and how the rebound in house prices since April 2009 have helped.
Based on a homeowner holding a typical 25 year repayment mortgage, they found that owners have significantly improved their options and chances to re-mortgage since April 2009. Today they are able to access a lower rate mortgage as they have broken through into a lower LTV bracket.
A house bought in April 2006 with a mortgage of £127,284 had a loan to value percentage of 83% and that is now 75%. Similarly, a house with a mortgage of £146,907 bought in bought in April 2008 with a LTV of 96% has seen that move down to 87%.
‘This analysis just shows how important the rebound in house prices have been for existing homeowners. Whether they have any intention to sell or not, rebuilding the equity in their homes is an essential element in gaining access to lower rates when they come to re-mortgage,’ said Martijn van der Heijden, head of mortgages for HSBC.
‘So whether homeowners are concerned that the house price recovery may not continue, or just want to benefit from having access to better rates than even a year ago, now may be a good time to remortgage and capitalise on the improved level of equity they hold,’ he explained.