What Does the Future Hold for UK Re-Mortgages?

Banking is governed by the supply and demand of money - when there is more money flowing into bank coffers, there is a greater supply of loans for individuals and businesses. As the United Kingdom struggles through one of the largest credit crunches in history, banks have begun rolling back the types of loans offered, including re-mortgages. High-risk re-mortgage versions are less likely to be available as long as the economy continues to struggle.

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Once a homeowner has completed the period for his initial mortgage, he has the option of selecting a re-mortgage, which modifies the stipulations of the agreement. Re-mortgages have been popular because they provide a number of useful functions for homeowners:

 Debt consolidation
 Equity release
 More competitive interest rate
 Moving.
 

Some property owners have used an initial mortgage to get their foot in the door. Once they've established some home equity, they turned to a re-mortgage for a better long-term deal.

With the credit crunch, many lenders are demanding that homeowners have higher equity levels - at least 20% in the home - before they qualify for a re-mortgage. In the United Kingdom, if the homeowner stays with their previous lender AFTER the agreed-upon term has ended, then their rate might revert to what is called the Standard Variable Rate (SVR).

Sometimes, homeowners re-mortgage before their previous mortgages have been completed to save on their monthly payments. Usually, they will be forced to pay an Early Redemption Charge (ERC) or exit penalty. There will also be arrangement fees applied to the re-mortgage.

Debt Consolidation

Enterprising individuals have used re-mortgages to provide cash liquidity for high-interest credit card debt, home renovation projects, and vacations.

Equity Release

When a homeowner has built up equity in a property, he can release some of this equity by using a re-mortgage. This gives the homeowner credit, which can be used to save money on monthly payments.

More Competitive Interest Rate

Some homeowners start with a high-interest rate mortgage for a short period of time to build up equity. Once enough equity is established, the owners re-mortgage the property for a longer term with a lower interest rate.

Other times, mortgages will be offered with special interest rate deals that expire after a short period of time; then, these mortgages revert to an uncompetitive rate thereafter. A re-mortgage can replace this uncompetitive rate with a more competitive rate.

Moving

When someone is moving, a revaluation of the property is customary. A re-mortgage will provide a more realistic payment amount and schedule based on the new property valuation. Property values are changing so rapidly in some areas that a re-mortgage might be a good option to reflect the real present property value.

There are many different types of re-mortgages available, including the following:

 Bad credit
 Base rate tracker
 Capped
 Discounted
 Equity release
 Fixed
 Flexible.

The Future of Re-Mortgages

In 2007, the United Kingdom was flush with money, offering very attractive, competitive re-mortgages to more questionable borrowers. With the credit crunch, banks are attempting to improve their balance sheets by writing off bad debt and making lending requirements more stringent.

Fewer re-mortgage types will be available as banks become more conservative in lending practices. Higher risk re-mortgages - such as the larger Loan-to-Value (LTV) mortgages, which were for more than 100% of the value of the property - have been abolished since 2008. Many of these re-mortgage loans were used for speculative house flipping purposes or for creating pyramids of real estate properties.