Homeowners who sold their properties in 2023 made an average profit of £74,000 according to data from property website Zoopla. But you don’t have to sell your house to benefit from rising property prices – they could help you get a better interest rate on your mortgage.

9 in 10 homes sold for more than their purchase price

Concerns that the Bank of England’s decision to increase its base interest rate might cause property prices to stagnate or fall appear to be unfounded as homeowners continue to benefit from long-term growth.

The average seller in 2023 had lived in their home for nine years and most made a profit. London homeowners saw the biggest gains of £137,000 on the average sale, whilst those selling a bungalow or detached home made an average profit of more than £100,000. Just 10% of property sales were sold for less than their purchase price, with the average loss weighing in at around £17,000.

You may discover that your budget is larger than expected if you’re searching for a new home this year. An accurate and timely valuation of your property is key to calculating your mortgage needs and setting the budget for your next move.

Rising property prices could cut your outgoings when you remortgage

You don’t have to wait until you sell your home to benefit from rising property prices – if the value of your home has increased it could help you secure a more competitive interest rate on your mortgage. Lenders compare the value of your home to your mortgage when reviewing your application to remortgage – this is known as your “loan-to-value” (LTV) ratio.

For example, if you purchase a property for £200,000 with a 10% deposit, your LTV ratio is 90%. If the value of your property rises to £220,000, your LTV ratio falls to around 82% because the size of your mortgage relative to the value of your property has now decreased. If you’ve selected a repayment mortgage, then your repayments will also lower your LTV as the amount you owe falls.

A lower LTV ratio usually results in a more competitive interest rate because you pose less of a risk to the lender. The combination of regular repayments and rising property prices could therefore lead to lower repayments in the future.

Lower interest rates could save you thousands over your mortgage term

The Bank of England has gradually increased its base rate over the last few years to help tackle inflation – it’s currently 5.25% compared to historic lows of 0.1% for much of 2020 and 2021. Many homeowners are dealing with sharp increases in their mortgage repayments as a result.

Securing a more competitive interest rate now could help to offset the previous increases you may have experienced. Even a small reduction could have substantial impacts over the full term of your mortgage.

Let’s say you borrowed £150,000 through a repayment mortgage with a 15-year term, if the interest rate is:

• 5.5% your monthly repayment is £1,126.

• 4% your monthly repayment is £1,109.

You would save £20,000 with a 4% interest rate over the full 15-year term of the mortgage compared to repayments at 5.5% interest over the same period.

Revaluing your home could therefore be a crucial money-saving strategy if your mortgage deal has expired or is due to do so soon. You can usually lock in a new mortgage deal up to 6 months before your current deal expires.

Being proactive and finding a new mortgage before your existing one ends could also mean you avoid paying your lender’s standard variable rate (SVR), which isn’t typically a competitive rate.

 

Whether you’re moving home or looking to secure a better interest rate on your mortgage, we’d love to help you make the most of rising property prices. We’ll help you assess the mortgage market and match you up with the right deal for your circumstances.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.

Approved by The Openwork Partnership on 10/07/2024

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