You are here: Home - Uncategorized -

Remortgaging for extra cash soars past pre-recession levels

0
Written by:
04/09/2017
Homeowners are increasingly taking advantage of low mortgage rates by borrowing extra money to redevelop their properties as a lack of available homes takes effect.

Exclusive analysis for Your Money sister title Mortgage Solutions undertaken by Countrywide found that extra borrowing to fund home improvements has grown rapidly since June 2013, with more people borrowing more money against their property when remortgaging.

Indeed, the additional value borrowed has more than trebled in value in the last two years alone with more than one in five remortgagees taking out additional capital in the last 12 months.

Soaring borrowing

Countrywide Mortgage Brokerage assessed 143,132 remortgages completed between the summer of 2006 and 2017.

The pattern its data reveals shows the extent to which homeowners are increasingly choosing to add extra borrowing when remortgaging to develop their property.

As might be expected the data reflects the availability of credit following the recession, however the recovery has vastly overtaken the pre-recession level – suggesting other factors are pushing the market past its previous level.

Following the low in the 12 months to summer 2010 when just 6% of remortgage applications included additional borrowing for renovations, this hit 20% over the last 12 months.

In 2006 the average increase in borrowing was 25%. This fell to a low of 13% in 2013, but has since soared to 38% over the last year.

Countrywide estimates just £500m was added to mortgages in 2011 while the last 12 months saw more than £7.25bn added – more than three times the £2.28bn in 2015.

LTV stability

However, in spite of this extra borrowing, the typical loan-to-value (LTV) of remortgages held steady at 64% during this period –  a combination of rising house prices and low interest rates.

Indeed, before the financial crisis, the average LTV of a remortgage was remarkably similar to current levels at 61% – in contrast it was just 48% in 2009.

Countrywide chief economist Fionnuala Earley told Mortgage Solutions the data suggested there were three key factors at play.

“First is the cost of moving house. While the change to Stamp Duty in 2014 means the bill is less than it would have been under the old regime for most outside of London, it’s still a big chunk of money,” she said.

“Second, with the market still slow there’s a lack of stock to choose from. This combined with more emotional or practical things such as schools, or being close to family means that there’s a bigger incentive to make your own fit by making some improvements.

“Third is uncertainty about what’s ahead. Rather than trade-up and take out a much bigger debt, remortgaging can make use of the equity and keep costs down.

“Credit availability is better now, but people still need to go through affordability tests and if building an extension is cheaper than moving, then a remortgage may be an easier way to achieve a bigger home with limited equity or tightened household finances,” she added.

Worrying trend

Perhaps unsurprisingly, London borrowers accessed the most capital (£135,000), while those in Wales and Scotland were the least like to borrow more and borrowed smaller amounts when doing so. (Click table below to expand.)

However, the trend is worrying Your Mortgage Decisions director Dominik Lipnicki, who raised concerns about future affordability.

“In my experience when you get an increase in property prices and not in wages its very tempting to use that capital,” he said.

“There’s nothing wrong with putting in an extension or paying off high rate debt, but we as advisers need to be sure its affordable and planned out. We have all been reading about consumer debt and I don’t think society has learned a lot since the crash.

“Secured borrowing is safer than it’s ever been but we and clients have to be sure its affordable in the future and we have to be sure that we’re not just fixing one thing and leaving another situation vulnerable,” he added.

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Comments are closed.

Are you a first-time buyer looking for a mortgage?

Look no further, get the help you need by searching for your perfect mortgage

Which ISA is right for you? A round up of the six products available in 2017

From cash to innovative finance to lifetime, here's our guide to the ISA products available to savers this yea...

Guide to buy-to-let tax changes

In late 2015, former Chancellor George Osborne announced a range of  tax measures aimed at landlords, which t...

A guide to switching energy provider

All you need to know about switching from one energy supplier to another.

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Five fund tips for a 0.25% interest rate environment

With interest rates stuck at a record low 0.25% and expectations rates could fall to close to zero, here are ...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Investing your money

Alliance Trust Plc gives you smart insight into how to invest your money

Money Tips of the Week

Read previous post:
shutterstock_291369725
Freshers’ week proves pricey for parents

As if tuition fees and accommodation costs weren’t enough, parents spend an additional £3,662 during the course of their child’s...

Close