What to do if your 85% mortgage can only be refinanced to 75%…
Hey guys,
Some of you may be facing the stark reality of an upcoming remortgage even though your loan to value or rental calculations are clearly nowhere near where they need to be to secure the same amount of mortgage as you had before.
I don’t think anyone could have (and I am yet to find anyone that did) predict the full extent of the credit crunch and its effect on mortgages. I must admit that I had to eat humble pie with James my Property Director who I told we would always be able to get 85% mortgages. Well we are down to 75%.
Now let me qualify this, firstly 75% mortgages are for new build and recently renovated properties — not second hand. If you have owned your property for at least two years you will avoid the whole ‘new build’ loan to value of 75% and stay around the 80%.
Secondly if you own a house rather than a flat you are also in a better position, in fact you can still access an 85% mortgage (So technically I was right James).
The real problem if you have held the property for a couple of years will not really be the valuation on the property but the rents. The rental calculations being applied by most if not all lenders are quite horrific but you can still work with them.
As always you need to do your due diligence and you need a mortgage broker that will package and also do the necessary research that is required to succeed in this market. You will need to get your rents up as high as possible and the best way to do this is to research comparables in the area. In particular the comparables need to be in the surrounding half mile of your property and you will need at least three of them.
I use two main websites to start my searching, right move and find a property.
Unfortunately and this will have the biggest effect on your cash flow; most of your refinances will be from a low rate to a high rate, in fact some of my own standard variable rates are not that much worse than if I remortgaged and paid a huge arrangement fee. So on some of my properties I am actually wearing the standard variable so that when the market does change I can jump on it.
The lesson is and always will be: Be massively aware of your cash flow.
So what can you do about it?
My main solution is get in early or wait it out, if you have to remortgage before October 2008 then just get it done now and sleep easy. If it’s between October 2008 and March 2009 then I would wait for a bit longer. Finally if it’s after March 2009 then don’t worry I believe that lending will be back in full swing by then. Yes, I do believe that 85% mortgages will be returning to the market. Obviously this is my opinion so you will have to do your due diligence and make up your own mind about this.
I have been saying it from the start of the credit crunch - first the banks need confidence, then they will begin being competitive.
In any case my team are here to help you out and we are more than happy to refer you to one of our brokers who can help out with a remortgage.
Live with passion,
Brett Alegre-Wood