Do You Need a Deposit to Remortgage?

Remortgaging involves replacing an existing home loan with a new one, often with a different lender or under new terms. This process allows homeowners to potentially secure a lower interest rate, change their loan term, or access built-up home equity. The need for an additional deposit when remortgaging is not straightforward and depends on several financial factors.

Understanding Equity and Loan-to-Value (LTV)

Equity represents the portion of your property that you own outright. It is calculated by subtracting your outstanding mortgage balance from your home’s current appraised market value. For instance, if your home is valued at $400,000 and your remaining mortgage is $250,000, you possess $150,000 in equity.

The Loan-to-Value (LTV) ratio is a percentage expressing the relationship between your mortgage amount and the property’s appraised value. Lenders use this metric to assess loan risk, with lower LTVs generally indicating less risk. To calculate LTV, divide the mortgage amount by the property’s value and multiply by 100. For example, a $250,000 mortgage on a $400,000 home results in an LTV of 62.5%. As you make principal payments or if your property’s value appreciates, your equity increases, and your LTV decreases. A lower LTV can make you eligible for more favorable interest rates and a wider range of mortgage products.

When a Remortgage Deposit is Typically Needed

While a cash deposit is often not required for a remortgage, certain situations necessitate providing additional funds. One primary reason is if your current Loan-to-Value (LTV) ratio is too high for the new mortgage product you wish to obtain. Lenders typically offer their most competitive rates for lower LTVs, such as 80% or below, meaning you might need to contribute a deposit to bring your LTV down to qualify for specific terms.

A significant decrease in your property’s market value since your initial purchase or last remortgage can also trigger a deposit requirement. If the property value falls, your LTV increases, potentially pushing it beyond a lender’s acceptable threshold. In extreme cases, a property could enter “negative equity,” where the outstanding mortgage balance exceeds the property’s value, making remortgaging difficult without a substantial cash injection. If you intend to borrow more than your current outstanding mortgage balance, perhaps to fund home improvements or consolidate debt, this action will increase your new loan amount relative to the property’s value. This higher borrowing can elevate your LTV, and lenders may require a deposit to maintain a comfortable LTV ratio. Finally, a decline in your credit score or a less favorable financial profile might lead lenders to view you as a higher risk, requiring a lower LTV and potentially a deposit.

When a Remortgage Deposit is Typically Not Needed

In most remortgaging scenarios, homeowners will not need to provide a cash deposit. This is because the equity you have already built in your property serves as the deposit for the new loan. When you initially purchased your home, a down payment was required, but for a remortgage, the lender relies on the existing value and your ownership stake.

If you have accumulated substantial equity in your home, either through consistent principal payments or due to an increase in your property’s market value, your Loan-to-Value (LTV) ratio will likely be low. A healthy LTV, often below 80%, typically means you can remortgage without contributing additional funds, as you represent a lower risk to the lender. Homeowners simply switching lenders to secure a better interest rate or different terms on the same mortgage amount, without seeking to borrow more, usually do not need a deposit. This “like-for-like” remortgage relies on your established equity and current financial standing.

Additional Factors Affecting Deposit Requirements

Lender policies vary significantly, with different institutions having distinct risk appetites and product offerings. One lender might be comfortable with a higher LTV for certain rates, while another may require a lower LTV, potentially necessitating a deposit to access their most competitive terms.

Your creditworthiness plays a role, as a strong credit history and stable income can sometimes allow for a slightly higher LTV without a deposit. Conversely, a weaker financial profile might prompt a lender to require a lower LTV, making a deposit more likely. The type of property can also affect requirements; certain properties might be perceived as higher risk by lenders. This perceived risk could lead to a lower maximum LTV they are willing to offer, increasing the chance of a deposit being required. Your interest rate goals are also important. If your primary objective is to secure the best rate on the market, and your current equity position does not meet that LTV threshold, providing an additional deposit might be a strategic move to achieve those savings.