Sam Dunn: How do we remortgage?

House Doctor
Click to follow

Question: We're remortgaging but found the £240,000 valuation by our lender (Nationwide) too low for us to get a decent loan. It's unbelievable; the house was priced at £295,000 last summer. It leaves us with a loan-to-value (LTV) of 91 per cent and although we'd like a two- or three-year fix, there doesn't appear to be much we can do. Should we just wait on Nationwide's standard variable rate or is there a better deal at a rival lender (if anybody will have us)? JG, Cumbria

Answer: Sadly, you're in good company: dismay, shock and outrage are just some of the milder reactions expressed by homeowners after learning the outcome of a valuation when seeking a remortgage.

After a year of plummeting house prices, homeowners have increasingly found their properties to be worth much less when they come to remortgage: subsequently, they have the horror of higher LTVs (the ratio of the mortgage size relative to the house price) and its attendant ills in today's climate.

Crunch-stricken lenders, wary of giving money to those with little equity in their homes, now offer the cheapest mortgages only to those with a juicy stake of at least 25 per cent.

So plenty of borrowers like you, approaching the end-of-mortgage deals with higher-than-expected LTVs, now face much higher monthly repayments.

A new three-year fix at Nationwide with your LTV is at an eye-watering 6.68 per cent, says the broker London & Country. Compare this to the Bank of England base rate of just 1 per cent, and it is mighty pricey.

The average two-year fix currently lies at 5.18 cent, Moneyfacts financial analyst says, but Melton Mowbray building society even has one at 3.99 per cent if you had an LTV of 75 per cent.

"If the Government is hoping to help home movers and first-time buyers, then the lenders not only need to be willing to lend, but to do so at a pricing that entices borrowers on to new deals," says Michelle Slade of Moneyfacts.

As you have been effectively frozen out, a cheap two- or or three-year fixed deal is certainly out of reach – for today, at least – but you do have some options, says Richard Morea of London & Country.

Since most lenders simply rely on an index for a remortgage valuation, you could find that a surveyor actually visiting your home could lodge a different, more favourable value.

"If you think your property is worth more than Nationwide has estimated, you could ask them to arrange for a surveyor to visit your property and give a specific valuation, but there is no guarantee that the result will be any different – and Nationwide may charge a fee," he warns.

Alternatively, says Melanie Bien at broker Savills Private Finance, you could use any spare savings to overpay your mortgage to lower your LTV – but that won't "significantly increase your options" unless your LTV approaches 75 per cent.

Assuming this isn't the case, your best bet is to slide on to Nationwide's standard variable rate (SVR) until better high-LTV deals come along. And, luckily for you, it's at an extraordinarily low rate.

"Getting stuck on an SVR used to be a problem but not at the moment, as they have all fallen significantly," Bien adds.

"You are particularly lucky with Nationwide, which guarantees that they will not charge more than 2 per cent above base rate. This means an interest rate of 3 per cent, which is incredibly cheap," she says.