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Remortgage

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Remortgage

Remortgage

Simon Hart explains all the options when it comes to remortgages.

What is a remortgage and how does it differ from a regular mortgage?

When you’re applying for your first mortgage you get so much advice. But when remortgaging, you’re just expected to know what to do – yet it’s just as a complicated process as obtaining your first mortgage, and sometimes even more so.

A standard mortgage is what you would apply for when purchasing a property. You’ll take a specific product from a lender – usually a fixed or variable product for a set period of time.

A remortgage is what typically happens at the end of that product period. You would refinance the property and select a new product type with your existing lender or a new one.

How does the process of remortgaging work in the UK?

The process doesn’t differ greatly from when you first purchase a property. The application itself is treated in much the same way and a lender is going to look at the same things.

They’ll need a new valuation of the property. They’ll do new credit scoring and an affordability assessment, with the same documentation and underwriting requirements as when you first purchase a property.

There are a few key differences. Obviously you’re not buying the property so there’s no need for a full structural survey. Another big difference is that when you first bought the property you would have instructed a solicitor – when you remortgage, a lot of lenders provide a free legal service. They arrange a solicitor to handle the changeover from one lender or one mortgage product to the next.

How long would it take to remortgage?

It can vary depending on a few factors. We normally speak to our clients about six months away from their existing mortgage deal coming to an end. That’s the earliest point at which you can look at the options.

A remortgage is typically valid for a period of up to six months, so if we start too early, we might end up with a mortgage offer that doesn’t last long enough. On the other hand, if we leave it too late there may not be time to complete all of the required checks to move to the new product at the end of your current deal.

Six months allows time to explore your options, do what we need to, and transfer immediately onto your new mortgage at the end of the current deal.

As I mentioned, lenders typically provide a free legal service for remortgages, which is going to save you money. The downside is that the free service isn’t always the quickest at handling huge volumes. So leave as much time as you possibly can.

What are the main reasons why people choose to remortgage?
Simply put, to secure the best deal for them. It might be purely a financial decision, to get the best value interest rate, but it needs to fit with you and your future plans.

When we look at remortgage options about six months out from your current deal ending, we’d hold a new mortgage consultation to discuss your mortgage, your plans, your employment situation and any family changes. That way we can decide what is the right approach for you.

But the main reason is that if you don’t remortgage, it’s going to cost you a lot of money. Your lender is going to transfer you onto a rate that’s a lot more expensive than what you’re currently paying.

What happens to the existing mortgage when someone decides to remortgage?

The new borrowing you secure through a remortgage will effectively pay off the existing mortgage with your current lender. The loan you currently have with Lender A is paid off by the new borrowing that you’ve secured from Lender B.

What happens if I decide not to remortgage after my deal expires?

This is definitely something we would want to avoid, unless there’s a particular reason to wait. If you do nothing, your monthly payments are going to go up quite significantly. At the end of your current mortgage deal you automatically switch onto something called the lender’s standard variable rate.

That rate is decided by the lender but it’s generally led by market conditions and the Bank of England base rate. Depending on your current deal, this standard variable rate may be double or triple the payment you’re on at the moment.

What factors should I consider when deciding to remortgage?
The option you choose should match your current situation and your future plans for the property.

As an example, if you’re thinking of moving in the near future, then selecting a new five year fixed rate mortgage product isn’t likely to be the best course of action. You’ll be stuck in that deal and it will limit your options greatly if you decide to move. There could be a significant early repayment charge if you sell the property and pay off that mortgage within your product term.

In that situation, a variable rate product might be preferable. Although it doesn’t offer the same consistency of monthly payments, it gives you a great deal more flexibility. There’s likely no penalty or a very limited penalty if you decide to sell and discharge that mortgage.

You might also want to think about other changes in your life and what budget works for you. You may have increased your income since the original mortgage was set up. You could potentially reduce the term or pay down that mortgage balance. You might be able to sustain higher monthly payments to pay off that mortgage faster.

Conversely, you might have more commitments. Using myself as an example, when my wife and I had a child, childcare costs in London were very expensive – so making our mortgage payments more manageable was our priority at that time.

Each person’s going to have their own preferences on what’s important – my job is to match the right options for the remortgage with where you’re at and what you’re looking to do.

What fees or penalties should I consider when remortgaging?
Ideally, you wouldn’t be paying a penalty or a fee when remortgaging, if you’re doing it at the correct time. You’d need a good reason to remortgage off of an existing deal onto a new deal and incur significant charges.

The penalties you would pay if you remortgage during a fixed rate period would usually be 1% of the loan remaining. We would therefore remortgage after that ends and secure the most effective deal for you at the end of that product period.

How much could I save by remortgaging?

At the moment, in February 2024, many people who are remortgaging might find that their interest rate has increased since they took out their last mortgage. They might not be making a saving in comparison to what they were paying before.

But you have to look at it within the scope of today’s market. You’ll be certainly be making a saving by remortgaging rather than rolling onto that lender’s standard variable rate. Our job as a broker is to find the best value solution for your circumstances in life and what you’d like to do. 

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What documentation do I need to start remortgaging?

It depends on what course of action you take. Typically you’ll have two options – to remortgage with your existing lender, or remortgage elsewhere to a new lender.

Remortgaging with your own lender is called a product transfer or a rate switch. That process is much simpler – you wouldn’t have to support that application with any additional information or documentation. That lender would just want to see that you’re up to date on your current payments and not in arrears.

You don’t have to have a new valuation of the property. They’ll decide on a value they’re happy with. You don’t have to share any evidence of current income, because the lender is satisfied that you’ve met all your mortgage payments. You’d just select a new product.

That’s the most straightforward process. The downside is that you would have to go with whatever your lender offers you.

If you’re remortgaging to a new lender, it’s treated as a new mortgage application, and typically requires a physical property valuation, employment and income verification, identity verification and so on. The documents we would need are payslips or self-employed documents, tax returns, identity documents – all the standard things you would have provided when you first bought the property.

Can I switch lenders when remortgaging?

Absolutely. It would be down to an assessment of your plans. Switching to a new lender is often the best way to secure the best value deal. Your existing lender might not be offering you the best value.

We’re here to advise you on how to save the most money. If there are better options elsewhere and we fit with them, fantastic. That’s what we’d be looking to do.

Will I need a survey or new valuation when remortgaging?

Yes, especially if you’re going to a new lender. They would likely undertake a physical valuation. Some lenders don’t necessarily do a proper home visit. They might have their own internal algorithms using a house price index to determine the value of the property.

From a lender’s perspective, the property value is important, because that’s the security for the loan. They want to check it doesn’t present a risk.

If you’re staying with the same lender, they would have an assumed valuation from the property – they’ll just offer you their best value products based upon that internal valuation.

What if I have changed my employment or I’m now self-employed or a contractor – can I still remortgage?

A lot of people really do need to think about their mortgage situation if they’re changing how they’re employed. Moving from employment to self-employment can have a big impact on your remortgage options.

Most lenders require two years’ worth of evidence of your self-employed income – and that might not always be possible to provide. If, for example, you took a two-year product and have since changed to self-employment, it’s obviously going to limit your options significantly.

We might not be able to use the income you’re receiving because we just don’t have sufficient history. That’s something to consider when you’re actually thinking about making a change. If you’re thinking about becoming self-employed, maybe taking a two-year product is not advisable – you might want a certain period of time to build up your self-employed income and use that on a remortgage application.

If you have changed to self-employment and we are not able to remortgage elsewhere because we can’t evidence the income in the right way, you can stay with your current lender. If you’re not in arrears on your mortgage and have been making your mortgage payments, you would just take a product from them at the point of remortgage.

What happens if my property value has decreased since initially obtaining my mortgage?

It’s something that we do see, unfortunately. The market can go up and down. It could limit your choices to a certain degree, but the good news is there are options available to you.

At the point of remortgage we would agree what we think the property is worth and match that against the borrowing, to give us the Loan to Value bracket. If your mortgage amount puts you in negative equity, we might not be able to apply to a new lender.

We would need to fit within the minimum equity requirements. This might be another circumstance where you would look at the options available with your existing lender.

If the property value has decreased, your mortgage may be more than the property is worth. But as long as you have a good track record of meeting your mortgage payments on time, your lender will present some options that are likely to be a lot better value than the standard variable rate.

How often can I remortgage my property?

As often as you like, is the simple answer, although you’d need a pretty good reason to remortgage several times in quick succession.

If you’re taking a fixed rate product, you wouldn’t necessarily want to remortgage outside the end of that product – there are quite significant penalties if you choose to end the deal within that period.

As we speak now in February 2024, interest rates have been falling. We had clients that remortgaged onto tracker products in the hope that the Bank of England base interest rate may fall. These people have now decided to switch to a fixed rate as the rates are now more affordable to them.

So there’s no real rule about how often you can do it. It’s up to your risk appetite. But with a fixed rate product, you wouldn’t really want to remortgage before the end of a fixed rate period.

What are the advantages and disadvantages of fixed rate versus variable rate remortgages?

It depends on the individual, but this is definitely one of the key decisions when you remortgage. From a fixed rate perspective, the main benefit is the consistency of monthly payments – knowing what’s coming out of your bank account on a monthly basis. That allows you to budget.

But if rates were to fall, you wouldn’t be able to come out and access preferable products – that’s where variable rates might be a preferable option. Most variable rate products or tracker products don’t have early repayment charges, or they are minimal in comparison.

With a variable product, you might benefit from a reduced monthly payment if the base rate were to continue to fall. The difference is around the consistency of monthly payments for a set period of time, versus having more flexibility with the added risk of not knowing whether your payment will go up or down.

What other advice do you have around remortgaging?

Reach out to a mortgage broker as early as you think is appropriate – even if you’re just concerned about what may or may not happen in future.

Six months out from the end of your existing deal is a really good point to start the process, but sometimes clients reach out to me a year or nine months before. They may be thinking about becoming self-employed or have found out they are expecting a child. These things will significantly influence their options and their thought processes for remortgaging.

We’re here to help guide you through the process from start to finish – and that’s what we love doing.

PLEASE NOTE: THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS. YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.