As house prices fluctuate, you might find that the value of your property rises significantly within only a few months or years of when you first took out your mortgage. There are several ways to benefit from this financially, but one of the most common is remortgaging early to get a better deal.

Remortgaging when your house value has increased can enable you to secure a better mortgage deal, release equity and access funds for major projects or redevelopment. A higher property value often means that you will be able to improve on your existing mortgage, especially if your current deal is about to expire. When a fixed term comes to an end, you will usually move to your lender's standard variable rate, which means paying a lot more interest. As such, the potential savings of remortgaging at this stage can be significant, whether you are looking to improve your mortgage rates for your own home or a buy-to-let property.
At the same time, it is important to consider this decision carefully. Remortgaging before the fixed term ends will incur early repayment charges that can cancel out savings, and there will be a legal process involved and other fees to pay. At JMW, our conveyancing solicitors are experts in guiding homeowners and landlords through the legal process of remortgaging. Here, we explain how you can leverage your property's increased value to improve your financial situation by remortgaging, and what the process involves.

How the Loan to Value (LTV) Ratio Affects Your Mortgage and Monthly Payments

The loan-to-value ratio is a key metric that a new lender will use to determine the level of risk involved in offering you a mortgage. This determines the amount you can borrow, the interest rates you will receive and the monthly payments you will need to make.

Your LTV ratio is the size of your outstanding mortgage balance as a percentage of your property’s current market value. For example, if your outstanding mortgage balance is £150,000 and your home is valued at £200,000, your LTV would be 75% (£150,000 divided by £200,000).

When your house value has increased compared to the purchase price while your loan amount has decreased (or even stayed the same), your LTV ratio falls automatically. If the home discussed in the previous example increases in value to £250,000, the LTV would drop to 60% (£150,000 divided by £250,000). If you have paid off more of the mortgage by the time the property value increases, the percentage would be even lower.

To a mortgage lender, a lower LTV signifies a lower risk, which puts you in a much stronger position to secure the best remortgage deal.

Key Benefits of Remortgaging with Increased House Value

If rising house prices have boosted your property's value, remortgaging when your house is worth more can offer a number of key benefits. You should first seek an up-to-date valuation as, while you can get a rough idea from online tools or an estate agent, a lender will always conduct their own valuation to confirm your property's value before offering a new mortgage deal.

If lenders conclude that your house has risen in value, whether due to the housing market or specific investments you have made in the property, you could access a number of advantages by remortgaging.

Access to better interest rates

The most significant benefit of a lower LTV ratio is gaining access to more competitive remortgage deals. Lenders tier their mortgage products based on the loan to value ratio, and the lower your LTV, the better the interest rate you are likely to be offered. Securing a lower interest rate can reduce your monthly payments, which frees up disposable income for savings, investments or daily expenses, and lowers the total cost of your loan so that you will pay significantly less interest over the entire mortgage term.

Opportunity to release equity

An increase in your home's value also increases how much equity you own. This is the portion of your property you own outright, or the difference between its current market value and your outstanding mortgage balance.

Remortgaging allows you to borrow a tax-free lump sum against this increased equity. Homeowners and landlords can use these additional funds for home renovations or major life expenses. Alternatively, it can be used for debt consolidation. You can pay off higher-interest debts like credit cards or personal loans by rolling them into your mortgage. This often means you pay a much lower interest rate, though it's important to remember you are securing the debt against your home and potentially extending the repayment term.

Shorter mortgage term or lower monthly repayments

When you secure a new mortgage deal with a lower interest rate, you must choose between paying off your mortgage early, or benefiting from lower monthly repayments. Mortgages where payments remain at the same level can enable you to save thousands of pounds in interest, whereas lower monthly mortgage payments mean you will free up more cash on a month-to-month basis.

More flexible mortgage terms

If your financial situation or goals have changed over time, remortgaging is an opportunity to switch to a mortgage product that better suits your current needs. For example, you might want to move from a variable-rate mortgage to a fixed-rate deal for the stability of lower monthly payments, especially in an uncertain current market. If you wish to let your property, a mortgage designed for buy-to-let landlords may be better for your needs than your existing deal.

What Are the Risks of Remortgaging?

While there are a number of benefits to remortgaging when your house price has increased, it is not without risk and will not be right for everybody. The main risk occurs when seeking a valuation. If a surveyor values your property for less than you anticipate, this can result in a higher LTV and limit your options to less attractive mortgage deals. If you are at risk of moving to your lender's standard variable rate because your fixed term is coming to an end, remortgaging could still save you money, but you will not make the same savings as you otherwise would have done.

If your house price has fallen, you will have less equity or, in the worst cases, be in negative equity (where your outstanding mortgage balance is more than the property's value). This makes it very difficult to remortgage, as lenders see it as high-risk.

To avoid being surprised by these downsides, begin looking for a new deal 6-12 months before your current mortgage deal ends. This gives you ample time to compare remortgage deals and complete the process without automatically moving onto the standard variable rate. This also means that there is plenty of time to carry out the legal aspects of the process.

If you have the option (meaning that you are not in negative equity), you should compare remortgage deals from multiple lenders. While your current lender might offer a new deal, switching lenders is often the best way to get the most competitive offer. When calculating the financial viability of this approach, make sure to investigate whether there will be any early repayment charges to pay. You should also factor in potential arrangement fees, valuation fees and legal fees for the conveyancing work.