Trade up at home

INCREASING your mortgage can be an emotive business: repayment of borrowing so as to achieve outright home ownership, is more often the objective. However, many people are now taking the opportunity to release equity within their properties by increasing their overall borrowing.

These homeowners have decided that money can be more efficiently spent on adding value to the place where they live, compared with the increasing number and scale of costs involved in moving house. Moving is often seen as a nightmare of buyers' chains and family disturbance.

Here, the level of stamp duty introduced by the current government has had a notable effect.

While it is not possible to convert, say, a basement flat in Kensington into a 17th century cottage, anyone considering a move to a property that is similar to their existing one should think about staying put instead. They can then set about improving the property exactly as they please. The additional cost can be quite small, while the flexibility this permits can be a significant advantage.

One family I know recently increased their mortgage by 100,000 to provide money for a major loft conversion, the interest rate they were offered was fixed at 5.09 per cent for a minimum of two years.

The previous mortgage was a simple variable rate and because of the improved rate the new monthly payments are only 30 higher and the local agents have said the property has increased in value by 175,000.

Recognising the opportunities for additional mortgage business, a number of lenders are promoting remortgage packages. The offers can include free valuations, low or no arrangement fees and, sometimes, a contribution towards legal fees.

Releasing equity for home improvements is now a straightforward procedure and the choice of mortgages has never been greater.

Not only is additional money being borrowed at the lowest interest rates seen in the UK for 35 years, but existing borrowing is also being moved by canny borrowers to lenders with more competitive interest rates. Mortgage holders are becoming more shrewder and are taking advantage of the easier procedures for switching lenders.

Policy changes by some of the high-street lenders indicate a reluctance to continue to offer loss-leading products and the current deals may not survive the year, but I firmly believe a choice will always be available even if the margins lenders are prepared to concede will ultimately tighten.

Reduce debt with your mortgage Remortgaging is not an option exclusively designed for those wishing to borrow more money to improve their property.

Many will simply switch to a new lender to achieve a finer interest rate or to obtain a different style of mortgage. Recent years have seen the introduction of current-account mortgages and these are becoming increasingly popular.

As most people are aware, the interest rate paid by borrowers is generally higher than the rate paid to savers. It can thus be far more financially efficient to reduce debt rather than increase savings.

A current- account mortgage allows a mortgage to be paid off as required by overpayment without penalty. Payments can also be adjusted according to circumstances, giving more control over finances. Any reductions made can be withdrawn to the original limit, allowing immediate access to funds for any purpose.

These schemes are particularly suited to the self-employed and those with the ability to make lump-sum reductions, perhaps from bonuses or erratic income streams, allowing them to "borrow back" money if a future need arises.

In the past, the perceived cost and hassle factor has discouraged people from restructuring their borrowing.

LENDERS have finally got their acts together and the combination of low interest rates, innovative products and a streamlined service have ensured that times really have changed. Yet, whatever your reasons may be for considering a remortgage, now is the time to take the decision one way or another.

Mark Harris is a Director of Savills Private Finance (020 7330 8500).

Copyright 2001
Provided by ProQuest Information and Learning Company. All rights Reserved.