Many people are currently wondering if they can raise money through remortgaging during the recession. Although times are very difficult in financial terms and from much of the publicity currently on television and in the newspapers you could be excused for thinking all banks have stopped lending and mortgages are a thing of the past. For a lot of people it still is possible to get a remortgage to fund projects such as having an extension built or other general improvements to the property, it's not easy but it is possible.
Basically the problems getting an increase in your mortgage fall into three categories.
People who are on a good standard variable rate (SVR) and can't find an interest rate which would make it worthwhile coming off it.
People who have credit problems and just can't get anyone to give them a mortgage.
People who have limited equity in their property.
If your only problem is that you are currently on a good SVR, and don't want to end up paying more for your loan then really the world is your oyster. One effect of the banking crisis is that banks are falling over each other to bring onboard solid borrowers with a good track record and a clean credit record. In this case I would always recommend going to your current lender in the first instance. A client of a mortgage broker friend of mine managed to persuade his lender (who will remain anonymous but like red houses and Cava) to give him an additional 120,000 on his mortgage at the same rate as his current loan to purchase a second house to rent out to students, including his son, in Newcastle. As long as you have a clean credit record and a decent amount of equity in your current property, there still isn't much of a problem with this type of borrowing, and the good news is that house prices are beginning to creep up again, dragging your equity up with them.
Credit problems are also not an insurmountable barrier, providing you have the required amount of equity in your property, and decent income levels to support the loan. It does however to some extent depend upon the type of credit problem you have. Late payments or a couple of defaults can be accommodated by the majority of high street lenders, but the thing to look for is that the amounts are not huge, there are not too many of them, and you are dealing with the problem. One point I should make here is that if you ever find yourself without enough money to service all of your debts, and are having to rob Peter to pay Paul, whatever you do don't default on your mortgage payment as this is the worst type of black mark on your credit file for making lenders decide against making you a further advance.
If you are over 55 years old, there is another type of mortgage you might like to consider which is the equity release mortgage. It's true to say this type of mortgage does cost you a bit more, but if you desperately need the money for vital repairs or your credit history is so bad nobody will talk to you this might be the way to go. Equity release mortgages are a bit like ordinary mortgages in reverse. Instead of gradually paying a small amount off the mortgage every month, a standard equity release mortgage adds the interest to the loan and takes the initial capital and accrued interest at the end of the term. Unless you win the lottery, this usually means when you sell the property. The good news is that this means you don't need to make any payments while the mortgage is running.
If you have limited equity in your property however things are much more difficult. Obviously it depends upon the amount of equity you actually have, but you might like to consider changing lenders, as some lenders have now raised their standard products to 85% (previously these were as low as 60%). If your lender is one of the less adventurous ones and is only offering you 75%, this would help you to raise an additional 12,000 on a 100,000 property. So the answer here is to shop around. If however you still can't find anyone to give you a loan, the only answer left is to put back your plans for a couple of years as most experts think property prices will probably rise quite steeply once the recession is properly over due to increased demand, and also once this starts you will find banks become more confident and will be willing to lend at 90% and even 95% loan to value ratios.
Gary Watts has been active in the Financial Services sector for 12 years, having spent 5 years of that as an independent mortgage adviser. He is currently director of Which Network a financial network consultancy providing free, independent and impartial advice to mortgage brokers in the UK.
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