Hedging against future value (when it comes to remortgaging)

simonelliot

Hi all.

I wanted to ask the community for clarification, and whether I'm thinking about this in the right way.

I have a large mortgage (2 year fixed deal which ends in 2017), and at this time I'd like to remortgage, so that I don't have to go onto the standard rate (which is around £300 per month more expensive).

As I understand it, I can use ANY principle that I have built up in the property (i.e, money that I have repaid on the mortgage - minus the interest) to reduce the LTV when it comes to remortgaging.

So, for instance, if my original mortgage was at an 80% LTV, at the time of mortgage (assuming that I have made extra capital repayments, then theoretically, I could remortgage at a NEW LTV (perhaps 75%).

Now, the first question for clarification, is that this NEW LTV (at the point of remortgaging) is on the original property value (so, for the sake of example, let's say that I previously had a 10% deposit in a flat valued at £200k = £20k deposit and 90% LTV). At the time of remortgaging, I have the £20k deposit, and I've repaid £20k in overpayments and principals payments. I therefore now have a 20% deposit (and can start looking at 80% mortgages).

Is this correct?

Secondly, assuming the above is correct, then what if:

1) The property appreciates in values (let's say that the property increases in value by £10k in two years. Will this help to lower the LTV? (and can I say to the bank, "hey, my property is now worth £210k, and I therefore have a deposit of: £20k (deposit) + £20k (overpayments) + £10k (property appreciation) = £50k total (25% Deposit, 75% LTV).

And thirdly, what if I were to invest £30k in building work (extension) and renovation, which increases the property value by a further £40k. Can I once again use this when it comes to remortgage?

So that I have:
£20k (deposit) + £20k (overpayments) + £40k (property appreciation) + = £80k total (40% Deposit, 60% LTV).

Thank you all so much in advance.

kingstreet

At the time, you take the mortgage amount you want/need and divide it by your estimate of the value. That will give you your loan to value.

The lender's surveyor will agree or disagree and that will determine the eventual product you get.

simonelliot

Thanks @kingstreet - and when you say "you take the mortgage amount you want/need" - I'm assuming this is the amount outstanding based upon the ORIGINAL mortgage amount that was taken out?

kingstreet

It's the amount you want to borrow. That may be the residue of what you borrowed originally, but people sometimes want money for debt consolidation, home improvements etc. so it's going to be different in every case.

So what you "want/need."