Remortgage before your LTV drops too far

Ray Boulger, Senior Technical Manager at leading UK mortgage broker John Charcol comments, “In the first half of this year, as the impact of the credit crunch resulted in rapidly deteriorating conditions in the mortgage market, we were advising clients to start talking to us about remortgaging six months in advance of their initial interest rate finishing. As conditions in the mortgage market improved from July until a fortnight ago, particularly with fixed rates falling in anticipation of Bank Rate being cut quicker and further than previously expected, the rationale for making an early remortgage application changed, particularly for borrowers wanting a fixed rate.

“However, with the even greater freezing up of money markets we are now experiencing there is again a strong argument for acting sooner rather than later. With LIBOR (now redefined as the rate at which banks don’t lend to each other) fluctuating violently, lenders are most unlikely to cut the tracker margins above bank rate they offer but some increases are expected. Therefore there is a strong argument for getting in quick as once a mortgage deal has been secured, borrowers will still reap the full benefits of the expected Bank Rate cuts. Lenders’ offers are generally valid for periods of between 3 and 6 months, depending on the lender, and so securing now for later is quite feasible.

“Swap rates are now only about 0.05% above their recent low point, having fallen back 0.35% from last week’s peak. This makes the argument on fixed rates less straightforward, but the continued uncertainty in the markets means that anyone wanting to remortgage this year should delay no longer. With the next Bank Rate cut now looking increasingly possible for this month, but an almost certainty by November, with more to come soon after, borrowers whose current deal ends in more than four months may prefer however to wait before applying for a fixed rate.

“One other point to bear in mind when thinking about the right time to remortgage is property values. With these still falling, some borrowers who today will quality for a 60%, 75% or 90% rate are likely to find that in 2 or 3 months time a fall in their property value, combined with a cautious mortgage valuer, will take their required LTV above these key points. Anyone in this position should talk to their broker now, especially if they are already close to the 90% barrier, as anyone needing more than 90% is unlikely to find any rate worth remortgaging to in the near future.