2nd-Mortgage

Many money lending firms in UK are offering remortgage for 100% of the value of their property in order to enable the borrower to consolidate some of his debt, or to switch over to a new lender for better repayment condition, or even to buy a new property.

Arrangement fees, valuation fees and fees for legal consultations are not imposed by most of the lenders for remortgage. The interest rate would range from 5% to 6.5% fixed for the first two years and then switching over to the Bank of England’s variable interest rate of 7.3%. However they would charge the borrower with an early repayment fee, if the borrower repays the loan during the first two years itself. They would also impose penalties if the borrower switches on to new lender again (Mortgage of the week, 2007).

The lenders could offer 100% remortgage because of the increase in price of houses and rent in UK. It is reported that 50% of people of UK are having 100% mortgage on their home (The rise of the 100% plus mortgage, 2007). The remortgage could go up to 125-135% of the value of their property and a personal loan also could be linked with it. But very few people qualify themselves to such huge amounts, and generally the remortgage averages to 103%. There is a huge competition among the lenders to offer 100% remortgage and if this trend continues the borrowers would have the advantage of cutting down the charges associated with the remortgage. They could also get a reduced premium amount.

There are two risks associated with this type of mortgage. Sometimes the borrower would be left with a huge amount of debt, which could not be repaid, even with the sale of the home. Another risk is that usually the interest would be higher or the lending fees would be higher in order to compensate for the risk undertaken by the lender (The rise of the 100% plus mortgage, 2007).

Thus it could be seen that the demand for 100% or more remortgage is increasing in UK, which would enable the borrower to acquire new property or reduce the debt he already has. This is because of increase in value of property as well as rent in UK. The lenders are waving off most of the fees associated with the remortgage because of this competition.

References

Mortgage of the week (2007) [online] Available at: http://www.mfgonline.co.uk/story.asp?storycode=98635&sectioncode=110 (accessed on 22/11/2007)

The rise of the 100% plus mortgage (2007) [online] Available at: http://www.myfinances.co.uk/news/mortgages/negative-equity/the-rise-100-plus-mortgage-$466956.htm (accessed on 22/11/2007)