The Mortgage Clinic: 'I need to remortgage – but have no equity'


'I bought my first flat in 2006 and took out a two-year fix for 5.9 per cent, as it was a near-100 per cent loan with Northern Rock. I need to remortgage and have barely any equity in my property; my loan-to-value is still 97 per cent. Where am I going to get a mortgage? Do I have any choice other than to go on to Northern Rock's SVR?'
HR, Newcastle

This isn't a pretty situation, and you won't be alone: thousands of first-time buyers who took advantage of cheaper credit and rather more accommodating lenders back in 2006 face a similar struggle. However, there may be a way out, depending on your circumstances.

First, secure an accurate valuation of your flat; it may surprise you, says Melanie Bien of the broker Savills Private Finance. "I'd have expected it to have increased in value over two years, unless it was a new-build flat." Ask local estate agents, and use property price calculators such as Nationwide's ( www.nationwide.co.uk/hpi). Alternatively, if you're using a broker to find a mortgage, see if it will instruct a valuation for you (you may have to pay extra for this).

Don't forget, adds Richard Morea at the broker London & Country, that your last two years of repayment can make a difference. "If you have taken a repayment mortgage then you should also check the outstanding balance, as you may have paid off more than you think."

If you're lucky, then, your actual LTV will stand at 95 per cent – the maximum that lenders are currently prepared to lend – and open the door to an affordable remortgage. "At this level, you'll be able to shop around for a lower rate – Bank of Ireland, Halifax and RBS will all do a deal at 95 per cent LTV," Ms Bien says. Skipton building society will also lend at 95 per cent LTV mortgage, according to Moneyfacts, the financial analysts, at a rate of 5.79 per cent plus a £799 fee. The Yorkshire bank offers a variable rate deal at 6.19 per cent with a £599 fee. These aren't cheap, but will save you a fortune compared to slipping on to Northern Rock's SVR, which currently hovers at an eye-watering 7.49 per cent, "a rate that could increase at any time," warns Andrew Montlake at the broker Cobalt Capital.

If your flat's valuation is above 95 per cent, then you may, sadly, have little choice. "It's worth asking Northern Rock whether they have any alternative options to their SVR for you," says Mr Morea, but your high LTV makes this unlikely. The nationalised bank is more interested in reducing its mortgage debts than extending them. It might be a long shot, Ms Bien adds, but if you've any savings then you could use these to pay down your mortgage – and reach the magic 95 per cent LTV figure.

Send us your questions and you could receive £50 to spend at Amazon

Foxed by jargon? Worried by the credit crunch? Email a question to mortgageclinic@independent.co.uk. We will not reveal your identity, and we cannot give specific advice. If your question is printed, you'll receive a £50 voucher from Amazon.co.uk, so you can kit out your home with anything from a lawnmower to an espresso machine. www.amazon.co.uk/homeandgarden

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