Is this how re-mortgaging works?

[rootsandwings89]

We bought our house in 2021 for £220k.
It’s currently valued at £250k (according to Zoopla.
Our mortgage is up for renewal November 2026.

Say for example the house was valued at £260k by then, leaving us with £40k equity - could we remortgage for £260k and use that £40k for home improvements?

If so, I’m guessing our monthly repayments would be much higher than we currently pay?

Have I got it right?

Yes, that would be one option but also yes, interest rates would be higher.

If your income was a limiting factor when you bought, you may also be able to stretch what you borrow a bit further if you've had payrises etc.

The other option would be to take out a lower mortgage against the new higher value which would increase the % of equity you have and hopefully allow you to bring the rates down a little bit more. However, that wouldn't release anything for home improvements (Or at least not as much).

The other one to check at the minute is whether there's a way to do the improvements with lower interest- when mortgage rates are so high, it would be worth checking other types of borrowing available too.

If you took out a mortgage in 2021 you are likely on a low interest rate and the first thing to do would be to calculate what your monthly payments are likely to be without any additional borrowing.
Assuming you are able to afford it, you do not need to wait until the end of your current term to borrow more. You can have a "second mortgage" if you need to release funds for home improvements.
Your mortgage company is likely to have information on this on their website. Nationwide certainly does.

The mortgages I have had in the past have never allowed you to take more than the original purchase price of the house, even if value has gone up. So they will calculate the LTV based on the new value, but you can’t borrow the whole amount. That was HSBC and Skipton. Not sure if its a general rule.

Yes, with a couple of limitations. Will you get a 100% mortgage - as you are removing all the equity (which was initially supplied by a deposit) and will you qualify for the higher borrowing.

I think - using your numbers - having 26k equity left, and a 234k mortgage is more realistic. BUT, you may have bought for 220, but I suspect without 220k of borrowing, and you will have paid some of that off since you moved in.

You need a better look at the numbers.

Your figures seem based on taking out a 100% mortgage and the mortgage not reducing since 2021?

You can increase the balance of your mortgage and use the extra funds for home improvements (subject to affordability as pp stated) but your figures don't seem right.

You need to find out how much you now owe on the mortgage as it will be less than the 220k you originally borrowed
But no you can't borrow 260k on a property worth 260k as that's 100% lending
Yes of course the payments will be higher if you borrow more money....
Finally don't rely on a Zoopla valuation as being as high as a valuation for mortgage purposes will be

Thanks for such a polite response

Thanks everyone, this is why I posted as I wasn't sure how it would work and all the articles I find seem to go round in circles!

I see now that would be a 100% mortgage!

The work we need to do on the house includes redoing the whole garden, a new garage roof, a new kitchen and an extension.

It's going to cost so much money to get this home to be what we need and I can't work out of it makes more financial sense to stay and improve or to just move house

Most banks and building societies for remortgage would do another valuation. Be prepared for a very Conservative valuation. I'd be surprised if they valued it more than £20k more than you paid unless you have done major renovations.

First thing you need to do is find out how much you owe on the mortgage now and then work out roughly how much you'll owe in 2026 when your rate ends
The work that needs doing sounds like it will cost a lot of money especially the extension and it doesn't sound as though you will have enough equity in the property to be able to borrow enough. If you only bought in 2021 then its unlikely that the value has gone up all that much especially if you haven't done anything work wise so far.
Might be worth moving

The lowest price on Zoopla would more accurate.

If you're currently on a cheap fix you'd do well to work out how much your mortgage would cost at 5% interest and save the difference between that and your current payment.

This will give you a head start on getting used to the new higher rate and build up savings towards the work you want to do which means you'll need to borrow less. However the work you've listed will probably cost more than £40k.

Would moving house to a property better suited to your needs in a much cheaper area be an option? If you need to stay in the area where you are, while getting the work done may cost a lot of money it might be a more realistic option than trying to move.

If you're going to stay and do the work, I think you need to think more about timescales and how you're going to do it. Your home improvements are probably several projects, depending on where you're looking at extending (ground floor? does this involve the kitchen and garden?) or upwards. You'll need planning permission or, under permitted development, party wall agreements from neighbours etc - and you'll need to find people to do the work and book it in. I agree that £40K is probably not enough to do all those different things, and agree with the suggestion to start saving towards the costs. I'd also suggest that you break up your planned works into separate sections and spread the expenditure and the hassle out over a period of time, with breaks in between, especially if you don't have the option to move out and live somewhere else while they are happening.