How much has the value of your home changed? Here’s why it could reduce your mortgage repaymentsSeptember 2022
Your home rising in value can seem like it doesn’t have a material effect on your finances. But if you’re paying a mortgage, it could reduce your repayments. Find out why here.
It’s no secret that property prices have been rising quickly. If it’s been some time since you checked your property’s value, doing so is a worthwhile step. If the value has increased, your mortgage repayments could be reduced.
According to figures from Zoopla, the value of all homes in the UK surpassed the £10 trillion mark for the first time in April 2022.
This has largely been driven by soaring property prices. The average price of a UK home has increased by £48 a day since 2020. A lucky third of homeowners – the equivalent of 9.4 million families – have seen the value of their home increase by more than £50,000.
Homes in affordable regions saw the biggest gains. While the value of the average home in Wales increased by 22%, London saw a more moderate increase of 7%.
Over the longer term, the value of your home is likely to have changed significantly.
If you purchased a house in June 2011, the average price was £167,753, according to Land Registry data. Over 10 years, the value of the average home has increased by more than £115,000.
While it’s always good news when an asset has appreciated, the value of your home may not seem to have a material effect on your wealth. After all, to access the cash locked in the property, you’d usually need to downsize, which may not align with your plans.
However, if you’re paying a mortgage, it could mean your repayments fall.
How rising property prices could cut your monthly mortgage repayments
When you buy your first home, it’s common to put down a 10% deposit, so the equity you hold in your property is 10%. Over time, as you repay the loan, the amount of equity you own increases.
As you build up more equity over time, your loan-to-value (LTV) ratio falls. Typically, a mortgage holder with a lower LTV will be able to secure a deal with a lower interest rate as lenders will view them as less of a risk.
In turn, this means your repayments could fall and you can save money over the full term of your mortgage.
While keeping up with mortgage repayments can lower your LTV, it’s not the only way.
If the value of your home has increased, you’ll hold more equity in your home. As a result, it could help you access a better interest rate on your mortgage.
When you compare the interest rates offered for different LTV bands, it can seem minimal, but it does add up.
If you have mortgage debt of £250,000 with a 25-year term with an interest rate of 2.5%, your repayments would be £1,122. This rises to £1,462 if the interest rate is 5%.
As the Bank of England has increased the base interest rate several times in 2022 in response to inflation, it’s more important than ever to understand how and why the rate you pay could change.
So, if your current mortgage deal has ended or will end soon, checking the value of your home could be beneficial.
Valuing your property before you remortgage
If your previous mortgage deal has ended, it’s worth looking for a new deal.
When a deal ends, you’ll usually be moved on to your lender’s standard variable rate (SVR). Often, this will mean you’re paying a higher rate of interest than you need to, but it could be beneficial if, for example, you have plans to move or make overpayments.
Whether your deal has already ended or not, it’s worth valuing your property before applying for a new one.
As part of a remortgage application, a lender will instruct their own valuation. How lenders carry out these valuations varies from a full valuation completed by a surveyor to an automated one.
Having a realistic valuation before you apply can be useful. It means you can approach the right lenders for your circumstances and understand what your repayments could be.
Online valuation tools and looking at current asking prices of properties in your local area are good places to start if you want to carry out your own research. You can also contact estate agents to visit the property and ask their opinion. Keep in mind that there will be variances and many things can influence the value of a property.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
Share the article
42-44 Rosemary Street
Belfast, BT1 1QE