Anyone who is already the owner of a property, whether they are the owner of a family home or a buy to let in Bristol, will see their property as an investment. It’s not just about creating a home, it is the largest asset in your possession, something you might pass through generations or eventually sell for a profit.
The property market is changing all the time and there will be both peaks and troughs. There will no doubt be times during your mortgage term, that you see property prices soaring.
During periods of time such as these, it can be a great idea for you to you to start looking at your options for a remortgage in Bristol, as in some cases you may find that you can access a far better loan to value (LTV) and in turn, better interest rates for your mortgage.
What is a loan to value and why do people remortgage in Bristol for a better one?
Loan to value (LTV) is a percentage that represents the relationship between the amount of mortgage you take out and the value of the property you are purchasing.
For instance, if you buy a property for £100,000 and put down a deposit of £10,000 (which is 10% of the property value), you would need to obtain a mortgage with an LTV of 90%.
Mortgage loan to values will typically be broken down into tiers or brackets. We find that the lowest bracket will typically be around 60%, with the highest being 95%. The tiers or brackets that are offered will be a little different, depending on the mortgage lender.
The lower your loan to value ratio is, the more competitive rates of interest you will be able to come across in the mortgage deals that are available to you.
Using the above example and moving forward some years, your property value might have increased to £110,000, with the initial mortgage balance of £90,000 coming down to £80,000. This means you have come down to a 73% loan to value.
What this means here, is if you were to take out a remortgage in Bristol, you would probably be looking at a 75% loan to value mortgage, which would likely have far more competitive interest rates.
Of course other factors such as the current condition of the market, also impacts this rate when you remortgage. The reason these mortgages tend to have better interest rates, is due to you being less risk to a mortgage lender.
How do I find out the value of my property in Bristol?
In order for you to access a better rate of interest or a better term, it’s also important for you to figure out what the value of your property is and if it is more than you actually paid for it. This means having a valuation taken out on your home.
When you take out a remortgage in Bristol, you will be taking out a mortgage with a new mortgage lender, which works differently to a product transfer, where you switch to a new deal but stay with the same mortgage lender.
Again, if you take a look at the risk to mortgage lender, because you are with a new mortgage lender, they will definitely want to double check the value of the property of the value they are going to be lending against. You will typically find one of two valuations taking place.
The first valuation type you may come across, is an Automated Valuation Model (AVM), also called a desktop valuation. With this, there won’t be a physical visit, with it instead using a database that analyses similar properties nearby, in order to determine a general value.
The other type of valuation that you will see, is a physical valuation. This is where a chartered surveyor will actually come out and visit your home, to inspect the inside and outside, in order to give a much more accurate property value.
A physical valuation can be especially useful for homeowners who have had any home improvements or extensions done, that similar properties nearby won’t have, which could be missed by an AVM. This is something you can ask your mortgage advisor in Bristol about, during your free appointment.
Remortgage to Release Equity When Home in Bristol Value Has Increased
Whilst the equity in your home can be often used as a way for you to access a better mortgage deal, in some cases we see that many instead will look to remortgage to release equity. There are a lot of reasons for this, such as those who may remortgage in Bristol for home improvements.
When it comes to taking out a remortgage to release equity, you must make sure that you plan carefully. In almost every situation, you will have a new mortgage that replaces the old one (as remortgages work that way), with you actually moving on to a higher loan to value.
Because you will have a much higher loan to value, it is very likely that you will see yourself with higher monthly mortgage payments to cover.
Many homeowners hope that by investing in these home improvements, you will see the value of your property increasing. This means that when it comes to taking out your next remortgage, you will theoretically see it on a lower loan to value again.
It’s all about making sure that you keep your eyes on the markets and that you have a very carefully thought out plan of action, especially when you have such a large financial investment in your home. A mortgage advisor in Bristol can be advise on how to approach this process.
Can I remortgage in Bristol early if the value of my home has increased?
Depending on your circumstance, you may find that you want to remortgage in Bristol early. Whilst a remortgage in Bristol typically takes place a few months prior to your fixed-period ending, this is not considered “early”. Some may instead look to remortgage even a whole year before that point.
The downside to taking out a remortgage early, is that in almost all cases, you’ll find that you will be responsible for taking out an early repayment charge (ERC), as on a technicality, you will have broken your contractually agreed terms.
House prices can be difficult to predict and navigating the market can be a challenge in itself, when you never quite know what it is going to look like. Whilst it could look like a great idea, it may not be a great idea for you financially to go forward with an early remortgage in Bristol.
People will only usually leave their mortgage early if they have an appropriate reason to do so, though we would always absolutely suggest that you speak with a mortgage broker in Bristol on board if this is definitely a route you want to go down.
An example could actually be the COVID-19 pandemic, where the Bank of England base rate fell down to record lows. Because of these events, people who were about due to remortgage in Bristol once their fixed-rate period ended, were able to inherit those rates and benefit from it.
If you still had to wait a year for this, you potentially wouldn’t reap these benefits, unless you had remortgaged early and fixed-in for longer. This is a pretty niche example from an anomaly in time, especially when there were mortgage lenders pulling products, limiting options for customers.
Even with that in mind though, it demonstrates a circumstance in which an early remortgage in Bristol could be a financial benefit. If your home has gone up in value, you may also see the benefit in an early remortgage, as the costs saved long-term from a lower LTV, may outweigh other costs.
As discussed though, one of those costs will likely be an early repayment charge (although a product transfer with the same mortgage lender could see this waived), as well as you having to pay possible arrangement, valuation and solicitors fees on the new mortgage you move on to.
If you are able to prove that the money you can save will definitely outweigh this, it may be an option worth looking at if you have to, though you should always discuss with a trusted mortgage broker in Bristol to understand the pros and cons first, before making a decision.
Date Last Edited: December 6, 2023
