While property values generally grow over time, they can also drop. For example, new build properties can depreciate in value over the first few years, with recent reports showing that the average new build property price in the East Midlands decreased by over £43,000 in the last year.
If you are in the situation where your property value has dropped and you are due to remortgage soon, this can reduce your mortgage options, but it is still usually possible to remortgage your property.
What does it mean if your property has fallen in value?
If a property value decreases from when you bought it or from your last mortgage agreement, this means it has fallen in value. For example, if you purchased a property for £300,000 and the current market value is now £275,000, the property value has fallen.
This can happen for a number of reasons, such as economic uncertainty or high interest rates. People who purchased property at a time when house prices peaked may find that their house value has decreased. For example, in July 2022, when average prices had increased by 13.6% in 12 months, some buyers were affected by house price drops when arranging a remortgage.
Can you remortgage in negative equity?
Negative equity occurs when your house value is lower than your outstanding mortgage amount. It is more difficult to remortgage in this scenario but there will usually be some options. High street lenders do not generally offer remortgage deals if the Loan to Value (LTV) is 100% or higher but some specialist mortgage lenders may.
How lenders assess Loan to Value
Having a lower Loan to Value (LTV) ratio will provide you with more mortgage options and access to lower rates.
The Loan to Value is calculated as: (mortgage amount ÷ property value) x 100. So, if your mortgage amount is £180,000 and your property value is £200,000, your LTV is 90%.
To assess the Loan to Value, lenders will instruct a surveyor to value the property and a small selection of lenders will approve mortgages with an LTV of over 90% to 95%, though these will usually be more expensive than mortgages with a lower LTV.
