Can I Remortgage to release equity?

Falling house prices don’t mean remortgaging isn’t an option. After all, those price decreases are coming after a decade of solid price increases! In other words, millions of homeowners have a substantial amount of equity in their homes – and for many, it could represent a good way of accessing the funds they need.

According to the Nationwide House Price Index, the average house price rose about £125,000 in the ten-year period leading up to the peak in October 2007. Today, leading experts like Graham Beale (Chief Executive of Nationwide Building Society) and the Centre for Economics and Business Research (CEBR) are predicting that house prices will stop dropping after they’ve fallen 25% from their peak price.

Assuming Nationwide’s ‘peak’ figure of £186,000 is accurate, that means the average house price should drop to around £140,000 – £46,000 lower than the peak price, but still around £80,000 higher than the 1997 price.

Plus, house price increases aren’t the only way people acquire equity: anyone who’s been paying off a repayment mortgage since 1997 will have repaid a substantial percentage of the capital.

Is remortgaging a good idea?

Of course, not every homeowner has owned their property since 1997. Some properties haven’t increased in price as rapidly as the ‘average’ property – and some have dropped a lot faster. Similarly, the prices of some properties will drop further and / or faster than others in the months ahead.

Everyone’s situation is different, and equity release isn’t always a good way to access funds, particularly when house prices are falling and no-one knows for certain how far they’ll fall.

Anyone who owes more on their home than it’s worth is said to be in ‘negative equity’ – a worrying situation, as it means they couldn’t pay off their mortgage by selling their property, so they’re likely to be stuck in that property until they’re out of negative equity (because the value of their house has increased sufficiently and / or because they’ve paid off enough of their mortgage debt).

So it’s always wise to stay out of negative equity by keeping enough equity in the house as a ‘safety margin’ against any future price drops.

Finally, there’s another side to equity release that people may overlook. Withdrawing equity through a remortgage will mean you owe your lender more than you used to. You might be able to remortgage at a rate that’s significantly better than the rate on your old mortgage, but you’re still very likely to end up paying more per month and / or paying your mortgage off for longer.

Unless you’re sure you can afford it, you’re risking your property – repossession may be ‘the last resort’, but mortgage lenders will repossess if you can’t keep up with your payments and there doesn’t seem to be any other way for them to get their money back.

In summary: a remortgage can be a good idea, but it isn’t always. Before you make any firm decisions, talk to a mortgage expert, who can help you take stock of your financial situation and make the right choice.

Related articles:

1. Should I remortgage if my home is losing value?
2. 900,000 homeowners pushed into negative equity, says mortgage body
3. House prices suffer smallest drop in 12 months
4. UK Remortgage Advice
5. UK Mortgage lending declines 10% in September