How to Remortgage When Property Value Has Fallen

Trying to remortgage when property value has fallen can feel challenging, especially if your loan-to-value (LTV) ratio has increased or you have less equity than expected. A drop in property value can affect the mortgage deals available and the criteria lenders apply, but it does not always mean remortgaging is impossible. Many borrowers explore their options when their current deal ends or when they want to secure a new rate.

Lenders typically reassess both your property value and your financial circumstances when you apply to remortgage. If your home’s value has decreased, it can change your risk profile from a lender’s perspective. This may affect interest rates, borrowing limits, and eligibility for certain products.

This guide explains how remortgaging works when property values fall, what lenders consider, and the potential options available. It focuses on general information to help you understand the process and the factors involved.

What does it mean to remortgage when property value has fallen?

Remortgaging when property value has fallen means replacing your current mortgage while your home’s market value is lower than when you first took out the loan.

When property prices drop, your loan-to-value ratio may increase even if your mortgage balance has reduced. For example, if your home was worth £250,000 and is now valued at £220,000, the proportion of debt compared to the property value becomes higher. This can move you into a different LTV band, which lenders use to price risk.

Lenders rely on up-to-date valuations when assessing remortgage applications. This valuation may be carried out through an automated model or a physical survey. A lower valuation can limit the number of products available, particularly those with more competitive interest rates.

In some cases, borrowers may find they have entered negative equity, where the mortgage balance exceeds the property’s value. This situation can restrict options further, although some lenders may still allow a product transfer with the existing provider.

How does a drop in property value affect loan to value (LTV)?

A drop in property value increases your LTV ratio, which can affect the types of remortgage deals available.

LTV is calculated by dividing your outstanding mortgage by your property’s current value. If the value decreases, the percentage rises even if your mortgage balance remains the same. For example, a £180,000 mortgage on a £200,000 property is 90% LTV, compared to 72% if the property were worth £250,000.

Lenders group mortgage products into LTV bands such as 60%, 75%, 85%, and 90%. Moving into a higher band due to falling property values can mean higher interest rates or fewer options. Some lenders may also have stricter eligibility requirements for higher LTV borrowing.

Higher LTV ratios can also influence affordability assessments. Lenders may apply more cautious stress testing to ensure borrowers can manage repayments if interest rates rise, particularly where equity is limited.

Can you remortgage in negative equity?

Remortgaging in negative equity is possible in some cases, but options are usually more limited.

Negative equity occurs when your mortgage balance is greater than your property’s value. Many lenders are reluctant to take on this level of risk, as there is no equity buffer if the borrower defaults. As a result, switching to a new lender can be difficult.

Some borrowers remain with their current lender and move onto a new deal, often called a product transfer. Existing lenders may be more flexible because they already hold the mortgage. However, product availability and rates may still be affected.

In certain scenarios, borrowers may consider reducing the mortgage balance through overpayments or waiting until property values recover. A regulated mortgage adviser may be able to explain the options based on individual circumstances.

What do lenders look at when assessing your remortgage?

Lenders assess several factors including property value, income, credit history, and affordability when reviewing a remortgage application.

The property valuation is central to the decision, as it determines your LTV. Lenders may use automated valuation models or instruct a surveyor. A lower valuation can directly affect product eligibility and pricing.

Affordability checks typically involve reviewing income, regular expenses, and existing debts. Lenders apply stress tests to ensure repayments remain manageable under higher interest rates. This is particularly important if your equity has reduced.

Credit history also plays a role. Missed payments or high levels of unsecured debt can reduce the likelihood of approval, especially where property value has fallen. Lenders may apply stricter criteria in higher-risk situations.

What are your options if your property value has dropped?

If your property value has dropped, options may include staying with your current lender, improving your LTV, or delaying remortgaging.

One common route is a product transfer with your existing lender. This avoids a full affordability assessment in some cases and does not always require a new valuation. However, available rates may be less competitive than those offered at lower LTV levels.

Another approach is to reduce your LTV by making overpayments or using savings to lower the outstanding mortgage balance. This can help you qualify for better deals if you reach a lower LTV band.

Some borrowers choose to wait until property values improve. Market conditions can change over time, and even small increases in value can significantly impact LTV and eligibility for remortgage products.

Practical example: how lenders may assess a borrower

Consider a borrower whose property has fallen in value and is approaching the end of a fixed-rate mortgage deal.

Suppose the borrower purchased a property for £300,000 with a £240,000 mortgage (80% LTV). After several years, the balance has reduced to £220,000, but the property is now valued at £260,000. The new LTV is approximately 85%, placing the borrower in a higher risk category.

A lender reviewing a remortgage application would assess the updated valuation, income, and expenditure. The higher LTV may result in fewer available deals and slightly higher interest rates. Affordability checks would ensure the borrower can manage repayments under stressed conditions.

If switching lenders is not viable, the borrower may consider a product transfer or reducing the mortgage balance. This example highlights how both property value and financial circumstances influence lender decisions.

What risks should you consider before remortgaging?

Remortgaging when property value has fallen carries risks including higher costs, limited product choice, and stricter lending criteria.

Higher LTV ratios often mean higher interest rates, which can increase monthly repayments. This may affect affordability, especially if household expenses have also risen. Borrowers should consider the long-term cost of any new deal.

There may also be fees involved, such as valuation fees, legal costs, or early repayment charges if leaving a current deal early. These costs can reduce the financial benefit of remortgaging.

In some cases, limited options may lead borrowers to remain on a lender’s standard variable rate (SVR), which is often higher than fixed or tracker deals. Understanding these risks can help inform decisions about timing and strategy.

Frequently asked questions

Can I remortgage if my house has gone down in value?

Yes, it is often possible to remortgage, but your options may be more limited. Lenders will assess your updated LTV and financial circumstances before offering products.

What happens if my LTV increases before remortgaging?

An increased LTV can reduce the number of available deals and may result in higher interest rates, as lenders consider higher LTV lending to carry more risk.

Is it better to wait before remortgaging if property prices fall?

Some borrowers choose to wait in the hope that property values recover, but this depends on individual circumstances and current mortgage terms.

Can I switch lenders in negative equity?

Switching lenders in negative equity is difficult, as most lenders require some level of equity. Staying with your current lender may be more realistic.

Do lenders always carry out a valuation for remortgaging?

Most lenders will assess property value, either through automated systems or a survey. This valuation plays a key role in determining eligibility and rates.

This guide provides general information only. Personalised mortgage advice should always come from a regulated mortgage adviser authorised by the Financial Conduct Authority.