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Should you take on additional borrowing when remortgaging?

Surge in homeowners borrowing extra when switching their mortgage deal

The number of homeowners taking on additional borrowing when switching their mortgage has increased by 9% in the space of a year.

New data from financial research firm UK Finance shows some homeowners are taking advantage of low mortgage rates to borrow an additional £55,700 when remortgaging.

Here, we explain the pros and cons of releasing equity in your home, and offer advice on alternative ways to raise cash.

 


Homeowners borrowing more when switching mortgage deal

Many homeowners remortgage at the end of their introductory term (usually two or five years) to avoid being passed on to their lender’s more expensive standard variable rate (SVR).

For some borrowers, however, remortgaging offers a way of raising cash for other pursuits, such as home improvements, debt consolidation or offering financial assistance to family members.

New data from UK Finance shows 16,810 people borrowed extra when remortgaging in March, a 9% increase year-on-year.

On average, these homeowners borrowed an additional £55,700.

Low mortgage rates spark additional borrowing

As uncertainty continues around Brexit, the property market has slowed, with some homeowners choosing to stay put and remortgage rather than move home.

Right now, it’s possible to take advantage of very competitive rates when switching your mortgage, with initial rates of below 2% available on fixed-rate deals up to 90% loan-to-value (LTV).

At the popular remortgaging level of 75% LTV, it’s possible to get a rate below 1.6% on a two-year fix, as shown in the table below.

Lender Introductory rate Revert rate APRC Fees
HSBC 1.54% 4.19% 3.9% £999
Barclays 1.57% 4.24% 3.9% £999

Should you remortgage to borrow more?

Unlocking cash in your home can be a sensible idea for some homeowners, especially if you’re looking to improve your property or gift a deposit to a loved one.

That said, there are plenty of risks involved.

First of all, borrowing extra means that you’ll either need to pay more back each month, or extend the term of your mortgage – which would mean paying more interest in the long run.

And if you’re borrowing at a high LTV, a fall in house prices could erode your equity.

If you choose to remortgage, it’s best to wait until the end of your fixed term, as otherwise you might need to pay an early repayment charge (ERC), which in some cases can be as high as 5% of the loan.

You can work out the monthly cost of repaying your home loan and how much deposit you will need by using our mortgage repayment calculator and LTV calculator.

Alternatives to remortgaging

There are several ways you can raise money as a homeowner without borrowing extra on your mortgage.

For example, a personal loan could help you finance home improvements, and depending on your credit profile and current borrowing, it could be possible to access a low rate.

Alternatively, you could consider using existing savings, or taking out a credit card with a long-term 0% purchase offer.

Advice on your mortgage options

If you’re thinking of remortgaging to get a better deal or to unlock cash in your property, it can help to get advice from a whole-of-market mortgage broker.

Your home may be repossessed if you do not keep up repayments on your mortgage.

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