Your most pressing property questions answered

Published by Rebecca Atkinson on 19 January 2009.
Last updated on 23 August 2011

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Q: What happens if I need to remortgage but the value of my house has gone down?

A: The value of the average home is about 15% less than it was a year ago, according to Nationwide Building Society. This means that your loan-to-value ratio – the proportion of mortgage debt to the property value – may be higher than you thought.

Homeowners whose LTV ratio is 75% or lower won’t have to worry about the lack of affordable mortgages but, if your mortgage is for 90% of your property’s value, your choice will be restricted – and anything higher than 90% will be a struggle, says Melanie Bien, director of brokers Savills Private Finance. “There are a few deals available at 95% but these are expensive and choice is limited. If you need to borrow more than this, forget about it,” she says.

If your LTV ratio prevents you from remortgaging, you will have to stay with your existing lender. It will probably insist you pay its standard variable rate (the rate to which borrowers revert when they reach the end of a mortgage deal), which is likely to be about 2% higher than the most competitive deals on the market.

Q: I took out a 100%-plus mortgage and am now in negative equity. Will I be able to remortgage?

A: Recent figures from the Bank of England reveal that up to 1.2 million homeowners are likely to find themselves in a home worth less than the mortgage secured against it – known as negative equity – as a result of falling house prices. People who took out super-sized loans of up to 125% of their property’s value have been

in that situation from day one, but the latest price falls will have compounded this.

No lender will take on your debt if it is more than the value of the asset that it is secured against. This means that you will have to stay with your lender which will probably put you onto its SVR rather than offer you a more competitive deal.

You won’t be able to sell your home if you are in negative equity – unless you are forced to. In that case, your lender might convert the surplus to an unsecured loan. This is a situation that should be avoided at all costs.

Q: I’ve heard that interest rates are on the way down to historic lows. How will this affect my mortgage?

A: The Bank of England starting to cut the base rate in October, and it has fallen from 5% to 1.5% in January. Some experts predict it could fall as low as 0%.

Whether or not this will affect you depends on the type of mortgage you have.

If you are on a fixed rate, you won’t benefit, because your rate is fixed for a certain period. If you’re on a discount mortgage or paying SVR, your fate is in the hands of your lender, which might not pass on the full rate cut.

If you have a tracker mortgage you should definitely benefit from the cuts as these loans are designed to ‘track’ the base rate.

If you are looking for another mortgage deal, a tracker looks appealing in theory. However, lenders have already got wise to this and have increased the margin between tracker rates and the base rate, making them substantially more expensive.

Tracker customers should also be aware that some lenders, such as Halifax and Nationwide, have ‘collars’ on their tracker deals, which means you have to pay a minimum rate regardless of whether interest rates continue to fall.

Q: I’m coming to the end of my fixed-rate mortgage. I’ve heard remortgaging is difficult and expensive so should I just stick with my lender and pay its SVR?

A: Given that the average cost of a lender’s SVR is a hefty 6.6%, it would seem to make sense to avoid them at all costs. However, while waiting for more competitive deals, it might be sensible to stick to your current lender’s SVR. And, if you have a small mortgage, it might not be worth the expense of moving onto another deal.

Regardless of the deal you’re on, it’s worth checking whether you could do better. You should be able to find the best deal for you by shopping around with the help of a good mortgage comparison website. For the latest mortgage news click here.

Q: I have heard that mortgages now come with high charges? When are these worth paying?

A: In a bid to be seen offering the lowest interest rates, mortgage lenders have increased their arrangement fees instead.

According to figures from Moneyfacts, the average fee for a two-year fixed rate is £977 compared with £322 three years ago.

David Hollingworth, a mortgage specialist at broker London & Country, says that, as a rule of thumb, lower interest rates favour larger mortgages – even if they do come with bigger fees. But if your mortgage is small, the rate becomes less important, so it’s not worth paying a high fee to access it.

“The ‘tipping point’ tends to be around £150,000. Below this you should not be paying high fees – but it will totally depend on individual circumstances,” he adds.

Q: I want to buy my first home but have heard that banks aren’t lending. Is it still possible to get a mortgage?

A: House prices are finally on the side of first-time buyers, but now there’s another hurdle – getting your first mortgage. There are no 100% or 100%-plus mortgages available and the number of 95% deals are becoming scarce.

You also need a bigger deposit to get a good deal – in the past it was enough to have 25%, but now you need 40% to qualify for the best deals. Louise Cuming, head of mortgages at, says those starting out need to save as much as possible: “A 10% deposit opens the door to much more choice and at lower rates.”

Q: I’m a landlord and need to remortgage. I’m prepared for costs to rise but am concerned that the rent won’t be enough to pay the mortgage. What are my options?

A: Increased competition in the rental market means rents are down everywhere – and, in some areas, you will be lucky to get tenants at all.

David Whittaker, managing director at Mortgages For Business, a buy-to-let broker, says that, if your rent is not sufficient to cover 125% of your mortgage, you will not be able to change lenders.

If the rent doesn’t even cover the interest and you can’t afford to cover the shortfall, your lender may agree to roll up what you are unable to pay for a certain period or put you on a cheaper retention rate rather than its SVR. It may also look at helping you generate more rent.

Either way, it’s important not to bury your head in the sand. Communicate with your lender.

Q: I won’t qualify for a mortgage even with lower house prices. What options have I got?

A: If you can’t afford to buy, the best option is to “hold tight, save and explore all options, so you are ready when the market is more attractive”, says Helen Adams, managing director of, a property advice centre for first-time buyers.

Asking your parents or any other relatives for help could also be an option and, if that’s not possible, you could look at a government HomeBuy schemes such as shared ownership or shared equity. These might not be available or suitable for everyone. For more information, check out the government's Housing Corporation website.

Q: I have heard that the best deals are now available direct from lenders. Does this mean I should avoid brokers?

A: A recent report from the Intermediary Mortgage Lenders Association revealed that the best mortgage deals were mostly found direct from lenders rather than through a mortgage broker.

Sorting out your mortgage should be fairly straightforward – you just need to decide what type of deal you want, shop around for the best deals and then contact your chosen lender directly. However, with market conditions being somewhat complicated, it could be worth seeking the advice of a mortgage broker to make sure you get the best deal.

David Hollingworth says: “Brokers provide advice and will not only look at the rate available but also tailor the product selection to your personal situation, taking into account any fees and – most importantly – individual lender criteria.” Find an IFA

Q: I have savings but worry that these are at risk. Should I use them to pay a chunk off my mortgage instead?

A: Savings up to £50,000 per person per institution are protected by the government’s Financial Services Compensation Scheme. Saying that, paying off debt is often a good idea. Whether or not it will be worth using your savings to repay parts of your mortgage will depend on several factors.

First you need to look at your savings and the size of your mortgage. Would £2,000 of savings really make that much of a difference to a £200,000 mortgage?

You also need to consider how much equity you have in your home - the less you have, the more important it is to try to reduce your debt. If you have less than 10% equity, your number one priority should be to lower the capital amount of your mortgage.

You also need to consider whether you need a savings buffer in case of unexpected costs. There’s no point paying off parts of your mortgage if you can’t keep up the repayments should you, for example, be made redundant. So ensure you have at least six month’s salary saved in case of emergency.

If you’ve decided to use your savings to pay off some of your mortgage you need to contact your lender to see whether you’re allowed to make over-repayments and whether an early repayment charge would apply.

Q: Have we reached the bottom of the market?

No one has a crystal ball, but this is what some of the experts say:

“Base rate cuts that were deeper and quicker than expected will bring enough buyers back into the market to stabilise property prices by mid-2009. This will give lenders more confidence to start lending again, although house prices won’t start rising immediately and the recovery will be slow.”
Ray Boulger, senior technical manager at John Charcol

“Until we see lenders move from hoarding cash to underpin their reserves, we are unlikely to see buyers return to the market, which will ensure that supply continues to outweigh genuine demand. This will mean that property values will continue to fall, possibly to 2002 levels. And for some this will mean that the homes will have fallen by up to 50% since the peak in summer 2007.”
Henry Pryor, housing data expert and former estate agent at Savills

“The housing market will continue downwards for another two or three years at least. By 2011, prices will be 40% to 50% below the highs of autumn 2007. They will be 20% off the highs by the end of 2009.”
Jonathan Davis, chartered financial planner at Armstrong Davis

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