Homeowners urged to remortgage as equity levels rebound

Published 26th May 2010

Homeowners who bought a property between 2006 and 2008 now have sufficient equity in their homes to remortgage on to a cheaper rate, research shows


Homeowners who bought their homes between 2006 and 2008 can potentially switch to cheaper loans because the equity in their properties has substantially increased over the past year.

A combination of low interest rates – enabling homeowners to pay off more of their mortgages – and increasing house prices means that someone who bought their home in April 2006 has increased the amount of equity from 17% last year to 25%, according to analysis by HSBC.

Someone who bought in April 2007 has increased their equity from 6% to 16%, while someone buying in 2008 has increased their equity from 4% to 13%.

The increase means that homeowners can apply for mortgages with a lower loan-to-value (LTV), dramatically cutting the cost of their monthly repayments.

The best rate the 2006 homeowner could have applied for last year was 4.59%, but they could now apply for an ING Direct two-year variable mortgage at 2.59% (75% LTV), resulting in savings of £152 a month.

Likewise, the cheapest mortgage the 2007 buyer could apply for in 2009 cost 7.09%, but this year they could opt for a lifetime tracker from First Direct currently charging 3.99% (LTV 85%), producing a monthly saving of £281.

The 2008 homebuyer can now apply for loans with a 90% LTV ratio (there were none available in 2009). The cheapest currently available is the HSBC lifetime tracker charging 4.49%.

HSBC's head of mortgages, Martijn van der Heijden, said: "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 remortgage."

"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."

HSBC based its calculations on 25-year repayment mortgages and house prices collected by the Land Registry.

House prices fell between September 2007 and April 2009, eroding deposits and equity held by homeowners in their properties. But values have risen steadily since last spring, according to the Land Registry, with the average house price rising from £152,761 to £164,288.

Source: ' Guardian '

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