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The importance of equity in your home…

The importance of equity in your home…

Category: Mortgages

Updated: 26/05/2010
First Published: 26/05/2010

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.
Homeowners have been told that the amount of equity they hold in their home is more important than ever, even if they are not interested in moving.

The traditional view that house price fluctuations are largely irrelevant unless people are looking to sell has been questioned by HSBC.

Lenders have always offered tiered mortgage rates to borrowers with differing levels of equity in their home, with the best mortgage deals being available to those with the greatest equity.

However, the bank says that the recent volatility in house prices, together with a rise in the associated risk of lending to people with low deposits, has created a widening gap between the mortgage rates on offer to homeowners with large and small deposits.

As a result, HSBC believes that the amount of equity held in a home is more important than ever, particularly for those homeowners looking to remortgage.

Research carried out by the lender showed that as house prices have recovered, the mortgage options available to homeowners, and therefore their chances of remortgaging, have improved.

In each case examined, homeowners have been able to access lower rate mortgage deals as they have broken through into a lower loan to value bracket.

"This analysis just shows how important the rebound in house prices has been for existing homeowners," said Martijn van der Heijden, head of mortgages for HSBC.

"Whether they have any intention to sell or not, rebuilding the equity in their homes is an essential element in gaining access to lower rates when they come to remortgage.

"So whether homeowners are concerned that the house price recovery may not continue, or just want to benefit from having access to better rates than even a year ago, now may be a good time to remortgage and capitalise on the improved level of equity they hold."

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