Remortgaging early

sjoh0961

Hello.

I am seeking some preliminary advice about remortaging, to see if the idea is likely to be a goer, so this may be a very short thread, but initial long post!

We bought in Acton, West London 18 months ago, for 385k. A three-bed end of terrace that is nice enough, but was scruffy, mainly because it had been rented out. We've neatened it up a lot, plus we've spent around 20k on improvements that include: DG, nice front and internal doors, modernised (replastered, decorated, carpeted, updated electrics) two rooms, and knocked skanky toliet and bathroom together into a nice bathroom.

First question: is the money spent on that likely to have gone on to the value of the house?

Recently, house prices round here (London generally, I guess) seem to have risen substantially. The house opposite went very quickly at an asking price of 515k, and is similar to ours. People seem to be trying their luck by listing houses on our road; one sold recently for 570k, but that was bigger and nicer than ours.

House price calculators (e.g. Nationwide) suggest our house may be worth around 435k, and that doesn't take into account improvements.

Second question: is it realistic to think that our house may now be worth 450k-ish, based on all this?

We have a mortgage where we tracked for two years, and then fixed for three. That means in March 2014, our payments (still low on long term averages, I think) jump from 1300/month to 1600/month.

We have a baby due in February, so would like to minimise this increase.

Third and main question: could we remortgage to get a lower interest rate and, therefore, monthly payment, even though we would get stung by exit fees from the fix; tbh I wouldn't mind borrowing more, if we could get the monthly payments down in what I expect to be a belt-tightening time. How would the house be valued? Would all that I've said be taken into account, therefore massively changing our LTV in our favour?

Thanks for any advice, and sorry for long post.

Tim

kingstreet

I can't answer all the questions about what the value of your property might be.

You can remortgage, pay any penalty and have a new deal with a new lender. You put your estimated value on the application and the lender's surveyor agrees, or disagrees with you.

That will determine the loan to value and the product you will be offered.

getmore4less

you can do it

will it get your payment down?

give some numbers
mortgage size full term an the rate/dates they change. Also the penalties and if they change over time.

sjoh0961

Thanks for taking the time to read and reply.

kingstreet; you've pretty much answered what I wanted to know. We basically apply for the mortgage, and tell them what we think it's worth now, and see if they agree. Do you know if they will take evidence we submit into account, e.g. if we point out the work we've done, and that similar houses nearby have sold for similar money?

getmore4less; I have done some working out. We would have to pay a pretty hefty ERC, but we're potentially looking at getting a 70% LTV instead of our current 85% LTV and, yes, comparison websites suggest that we would save a substantial amount of money on a monthly basis. We might actually lose in total terms over a few years, but this is very much about short-termism and getting repayments down.

ethank

I would get a valuation from an Estate Agent on likely sale price to start with, as then you will have a understanding of the likely valuation. I'd also bear in mind that they will probably add a few extra thousands on what it is likely to sell for in my calculations.

Alternatively look on Zoopla for similar properties.

kingstreet

The lender's surveyor follows a set RICS guide for valuing property called the red book. This involves obtaining evidence of comparable sales in the last few months.

rob404uk

I suspect your house is worth not far off half a million, Zoopla does tend to lag in a rising market. On my road it says mine is worth 309 even though doors down, same size sold for 405. The nationwide valued is based on sold prices and I suspect that is lagging too.

sjoh0961

Thanks everyone for replies, especially kingstreet. It sounds like it might be a possibility then!

hillcats

Just don't bite off more than you can chew...
Make sure you can afford any increases when interest rates rise!

getmore4less

see if you can extend the term.

you need to compare up to the time the penalty period ends to see what the true cost of reducing the payment is.

stick up the numbers.

sjoh0961

Ok, thanks again.

In terms of biting off more than I can chew: I'm not planning to significantly increase the size of my borrowing (some credit card stuff might go on, I hope), and I'm planning to fix for at least 3 years, so over-committing shouldn't be an issue (if it is, that goes back to the original purchase, so it's done already...)

In terms of numbers, there's lots of buts and maybes. However, general idea is:

• currently owe 318k-ish
• erc will be 15k-ish
• hope house is worth 450k-ish
• therefore, hope to qualify for 75% mortgage

Our payment if we stay, would be 1.6k/month fixed for three years. Comparison sites suggest that a five year fix for less than 1.2k/month is possible. So, we'd save 400/month for three years, which would represent an overall loss (accounting for ERC) of maybe 2-3k. I would accept this loss over three years, as it would make things much easier month-to-month.

Are there any major flaws in my reasoning (other than, obviously, that I don't really know what they will value my house at. On that note, on the remortgaging application, does it make sense to enter as high a value as I realistically can (e.g. claim 500k), or be less ambitious and just go for a lower figure (e.g. just claim it's worth 460k)).

I'm very grateful for the help and opinions.

Tim