The World’s Local Bank has recently released comments urging anyone that bought a house between ‘06-’08 to get out the and find the best mortgage deals currently available and refinance their mortgage to get onto a cheaper deal, because new research has found that they should now have sufficient equity in their home to allow them to do so. Quite an interesting report until you realise that the research, and subsequent call to action is being made by… HSBC.
Despite the fact that any report or recommendation from an organisation with such an obvious vested interest should be treated with scepticism, the research does seem to be drawn on a sensible basis.
The reasoning behind HSBC’s recommendation to remortgage is fairly robust and points to the current low interest rates on offer and increasing house valuation figures - so anyone that purchases a house in April 2006 has increased the amount of equity from 17% last year to 25%, someone who bought in April 2007 has increased their equity from 6% to 16%, while someone buying in 2008 has increased their equity from 4% to 13%.
The theory at work here is that an increase in house values allows one to refinance to a mortgage with a lower loan-to-value ratio, this will reduce their monthly mortgage payments.
However, it is not only who the research comes from that should force a pinch of salt’s addition to the mix, but also the fact that it is based on nationalised figures — and the combination of the two.
For a start, prices have risen in some areas more than in others, and in fact prices have continued to fall in many areas.
Secondly, because it comes from HSBC it is written on a glass half-full basis; in that low interest rates have not allowed everyone to pay off more of their mortgage. In many — if not a large majority — of cases, the low interest rates have merely allowed people to hang onto their homes, for instance the thousands of people who voluntarily accepted pay cuts and or reduced working hours in order to keep their job.
For those people fortunate enough to have been able to capitalise on the low interest rates to pay off more of their mortgages, and fortunate enough to live in an area that has seen prices rise by the national average or more, then now is most certainly the time for them to capitalise on their new reality and hunt down the best remortgage deals and take advantage of the lower repayments. For everyone else, maybe not so much.