Are remortgages and secured loans still an option in today’s troubled times? What actually happens to remortgage / secured loans markets when a credit crunch and a housing market crisis come hard on the heels of a decade of rapid house prices increases?

The first thing to note is this: it’ll take a long ‘crash’ to wipe out all the gains of the last decade (and cause serious problems for anyone thinking about a loan or remortgage). When house prices peaked in October 2007, according to Nationwide’s House Price Index, the average house had taken just ten years to more than treble in value, rocketing from £60,754 (Q3 1997) to £186,044.

It is true that prices dropped around 9% (to £169,316) by July 2008, but this took them back only to the kind of price levels we’d seen in September 2006. In other words, it took nine months to wipe out the gains of the 13 pre-peak months.

It’s always dangerous to draw parallels with previous housing market downturns, but looking back to 1989 (the last time house prices peaked), prices went down about 20% over three and a half years before starting to climb again. Prices are dropping faster this time, but the recent decade of rapid rises shows just how much demand there is for housing – or rather how much demand there will be as soon as the mortgage market picks up again…

How much equity is there out there?

Whatever lies ahead, the average person who’s owned their house for the last decade could easily have over £100,000 of equity – enough collateral to remortgage or secure a substantial loan. Aside from the increases in the property value, there’s also the ten years of mortgage payments to take into consideration.

Of course, anyone who’s already secured a loan against their property in the past would have less equity to draw on now – unless they’d used that secured loan to finance home improvements, potentially increasing the value of their house (and therefore their equity).

Is it available?

Just because the equity is there, it doesn’t necessarily mean it can be accessed. You will find now that lenders have become very cautious about lending money, even if the when the borrower is offering to secure it against property. After all, a house is less valuable as security at a time like this, when property is steadily decreasing in value and hard to sell – every lender knows that other lenders are equally hesitant about granting mortgages, which is significantly reducing demand in the housing market.

So mortgages and secured loans have become both harder to obtain and more expensive. Lenders are also generally less willing to lend as much: many are limiting remortgages to 80% of the property’s value, as they don’t know what will happen to prices and can’t rely on natural price appreciation to guarantee recovery of the funds.

However, even though the criteria are stricter, homeowners with enough equity (and the means to make the repayments) can still withdraw it – so for them, a secured loan or remortgage is still an option.

Bookmark It