Thinking of remortgaging? It’s a good idea to get your home valued before you approach a lender.
Let’s take a look at why it’s worthwhile doing this, and how to go about it.
Sitting on a goldmine?
Remortgaging isn’t too different from applying for a mortgage the first time round. The key difference is that rather than borrowing money to buy a new property, you’re changing the deal on the loan you have.
There are several reasons to remortgage. For instance:
• Your current deal is coming to an end and you want to switch to a new deal.
• You feel the deal you’re on is no longer competitive.
• You want to borrow more money, perhaps to fund home improvements.
Whatever your reason, if you decide to remortgage you’ll need to know the value of your home. This is because from this you can work out the equity you have in your property.
When you bought your first home, you’ll most likely have paid for it using a combination of a deposit you saved and a mortgage. Then, when buying your next home, the money would come from the profits you made selling your former property and a mortgage.
Remortgaging is different, because in this case your equity is used in place of a cash deposit. Equity is what’s left when you subtract the amount you have outstanding on your mortgage from the current value of your property.
How do I work this out?
When you apply to remortgage, equity will play a significant role in the deal you’re offered. Even if you don’t plan to borrow more but to simply switch deals, it will affect the interest rate you’re offered.
So, you need to work out your equity, and that’s where valuing your home comes in.
Now, you might think you can just give a lender the highest number you can think of in order to get a better deal. After all, the more valuable your home, the more equity you’ll have.
But your lender will verify that your property is worth what you say it is. By giving them a number that’s wildly different to your home’s actual value, you’ll just hold up the application process and you’re unlikely to get the deal you want.
Depending on how long you’ve owned it, it’s unlikely that your property is worth what you paid for it. It may have gone up or down since then – even if you’ve done nothing to it.
Check out how much properties have sold for in your area over the last few months. This can be a good starting point for working out your own home’s value. Of course, what your neighbours’ properties sell for will depend on things like the number of bedrooms they have and how much work has been done to them, so don’t assume your property is worth exactly the same.
Visit Rightmove and Zoopla, where you can check how much properties in your postcode sold for. You can also sign up for free property monitor emails from Mouseprice, which provides you with an overview of house sales activity and values in your area.
You can also contact an estate agent to get your home valued, and often there’s no charge. Using all this information, you can get an informed idea of how much your home is worth. Depending on market conditions, it may be more or less than you paid – hopefully it will be more!
From this value, you can subtract the sum you have outstanding on your mortgage. What’s left is your equity.
As we said earlier, the lender won’t just take your word for it. As part of the application process, they’ll send someone to value your home.