Remortgaging explained

06/11/2015
Mortgages, Remortgage
Remortgaging doesn’t involve moving house. If you want to find a new deal because your existing one is coming to an end, or has already ended, changing your current mortgage is a straightforward process that could end up saving you money. But despite recent low interest rates, around 3 million people in the UK with mortgages are currently on their lender’s Standard Variable Rate (SVR) (1) and probably paying more each month then they need to. To see if you could benefit from remortgaging our experts have put together answers to the questions they get asked most. And if you’d like to discuss any aspect of remortgaging with us just get in touch. Our advice is completely fee FREE and could end up saving you thousands of pounds.

What is a remortgage?

A remortgage is when you take out a new mortgage on the home you already own - either to replace your existing mortgage or to borrow additional money against your property. Around a third of all home loans taken out in the UK are actually remortgages (2) and there are plenty of good reasons why you might think about remortgaging yourself, saving money being just one of them. But you need to consider all the costs involved (and not just the interest rate) before you do it. Our mortgage advisers can give you advice on whether you would benefit from remortgaging.

What are the reasons for remortgaging?

The main reason for remortgaging is to find a new, better deal that’ll save you money (3). Because your mortgage is your biggest financial commitment it follows that anything you can do to reduce your repayments will produce the largest saving - sometimes £1,000s each year. But you can also remortgage to:

release some of the equity built up in your property for other spending, such as home improvements
extend the term of your mortgage to reduce monthly repayments. (Careful, this will mean it takes longer to pay off the loan and could cost more in total.)
reduce the mortgage term – by finding a cheaper deal and keeping your repayments the same you could be mortgage-free sooner.

Can I remortgage?

You need to check with your lender. When you take out a new mortgage you normally get an introductory deal, like a low fixed or discounted rate or low tracker rate. These deals normally tie you in for between two and five years and once this period ends you’ll probably be moved onto your lender’s Standard Variable Rate (SVR.) which will typically be higher than other rates you may be able to get elsewhere. But In most cases, once you’re moved onto your lender’s SVR you’re free to remortgage - but ask first.

When can you remortgage?

You should start to think about remortgaging three to six months before your current deal ends. Look at the market to see if switching to a new mortgage deal will save you money. Our expert mortgage advisers can search the whole of the mortgage market to bring you the most attractive deals out there but bear in mind that these deals change all the time, even without a rise in the Bank of England Base Rate. Of course, if you’re already on your lender’s SVR you should start looking immediately but if you only have a small outstanding mortgage the money you stand to save may be too low to make switching worthwhile.

Is remortgaging always a good idea?

No. Remortgaging may not save you money and may not be possible if:
  • You’re tied into your existing deal. In which case, a large early repayment charge could outweigh the benefits of a lower interest rate.
  • Your circumstances have changed. Stricter mortgage rules introduced in April 2014 mean lenders must now see evidence of your income. If your financial position has altered since you took out your current mortgage a new lender may not be prepared to offer you a loan.
  • Your home has dropped in value. Mortgage deals vary according to the value of your home and the size of your loan (Loan to Value - LTV). If your house has dropped in price you might have slipped from one LTV bracket to another.
Our mortgage advisers can give you advice on whether you could benefit from remortgaging.

How do I remortgage?

Start by getting all your latest mortgage and bank statements together to see the rate you’re currently paying and what your monthly repayments are. Check your mortgage small print for any early redemption charge (ERC) – especially on discounted, fixed, cashback or capped deals. You may also find you need to pay your lender's SVR for a set period after your initial deal ends. But if you’re free to move, you can start tracking down a better deal. There’s plenty to choose from so if you don't want to do the legwork yourself our experts will check the best deals from over 40 lenders for you and talk you through the entire process.

Do I have to have a house valuation for a remortgage?

If you’re changing lender, yes, your home will almost certainly have to be re-valued. This usually involves your lender organising for a surveyor to visit your house for an inspection. However, some lenders will simply use a ‘desk top’ or ‘drive by’ valuation, where an assessment of your property’s value is made without seeing inside.

How do I get my house valued for a remortgage?

Your new lender will arrange this on your behalf, at a time convenient to you, and confirm when the valuation will take place. Once the survey is completed a report will be sent to your lender who’ll let you know what your house is worth and how it affects the deals on offer to you.

What are remortgage legal fees?

A solicitor or conveyancer is needed to carry out legal work including searches, checking title and any planning permissions and obtain signatures to the mortgage deed. Either your lender will instruct a solicitor but if you want to use your own your lender will usually insist that they’re on their approved list or ‘panel’. There is less legal work involved in remortgaging than when you buy a house so it should cost less - and some lenders may even offer it for free. Check to see if this is part of the deal offered.

Do I need a solicitor for a remortgage?

If you’re moving lender then yes as legal work is required to remove the original lender's interest in your home and register the new lender. The good news is that most remortgages include a free legal package. However, your lender will select the solicitor and the service may not be as fast as if you were paying the solicitor yourself. If you're using your remortgage to add or remove a name on the mortgage this won’t be included in your free legal package.

What are the costs of remortgaging?

Our experts never base their advice solely on interest rates. We know that cheapest doesn’t always mean best. Instead we look at every detail, including individual features, costs and that all-important small print. Most products have at least one mortgage fee - the mortgage booking fee, valuation fee and the mortgage arrangement fee. But depending on the deal you choose you may not pay all or even any of these.
  • Arrangement or Product fee: This covers a lender's administration costs and can be in excess of £1000. So it's a key part of the true cost of a mortgage, along with the interest rate.
  • Booking fee: Some lenders charge a mortgage booking fee to secure a fixed-rate, tracker or discount deal - it's sometimes also called an application fee or a reservation fee. It's shouldn’t be more than £100-£200.
You'll need to pay this fee (if your chosen mortgage has one) as soon as you submit your application. It’s non-refundable, so you won't get it back if you change your mind about your deal.
  • Valuation fee: Most remortgage packages give you this for free. If you have to pay it expect it to cost around £300-£400.

What’s an Early Repayment Charge?

An early repayment charge (ERC) is a penalty for repaying your mortgage (or overpaying more than is allowed) during a tie-in period, usually the length of time you’re on an initial deal. This includes switching from one mortgage deal to another. You’re being penalised for breaking the deal early so your lender uses the fee to recoup some of the interest it’s losing. The charge is usually a percentage of the outstanding mortgage debt and it should reduce the longer you stay with it.

Can I remortgage to release equity?

If your home has increased in value during the period of your mortgage, you may be able to increase your borrowing. This is called ‘equity release’. Remember though that the best remortgage deals are usually those with the lowest LTV ratio so bear this in mind if you’re considering borrowing a high percentage of your property’s current value. Our experts can advise you on this.

Can I get a remortgage for an extension?

Yes. Providing you meet your lender’s criteria to borrow extra money and comfortably meet any increase in monthly repayments. Lots of people borrow more for home improvements when they remortgage and an extra benefit is that you’ll probably increase the value of your home in the long term. A new lender will ask you what the extra money is for and be prepared for your lender to ask for evidence if you are borrowing a large amount, e.g. builder quotes.

Can I remortgage to buy another property?

Yes. Remortgaging may be a good way to fund either the deposit on a second property or even buy it outright. The property can either be a second home for yourself - either in the UK or abroad – or a buy to let. Typically you need a deposit of around 25% for a buy to let. If you’re fortunate enough to be able to buy a second property outright you may well find that a remortgage deal works out cheaper than the specialist buy-to-let mortgages on the market.

Can I remortgage with bad credit rating?

Banks and building societies are understandably careful about who they lend to. This means they’ll always check credit reports carefully to see if you have a poor credit rating as this may be the result of you missing debt payments in the past. They’ll also look for any County Court Judgments (CCJs) against you, or if you have ever filed for bankruptcy. But although a poor credit rating can be a major barrier to getting a mortgage there are specialist lenders who are prepared to help and there are even mortgages specifically designed for people those whose credit history isn’t perfect.

Can I remortgage with the same lender?

You can – but it’s usually called a product transfer and not a remortgage. There are several advantages of taking out a new mortgage deal with your existing lender. Firstly you may be eligible for a preferential interest rate reserved for existing customers. Also, the process is more straightforward, with potentially lower fees, and can sometimes be completed online. Because we can search the whole of the mortgage market our mortgage advisers can give you advice on whether you’d be better off staying with your existing lender or switching.

How often can I remortgage?

It’s always a good idea to review your mortgage on a regular basis to see if changes in the market could benefit you and our experts are happy to help. Remortgaging needn’t only occur when your mortgage term comes to an end but remember it’s not a cost-free process and your current mortgage may carry penalties or charges if you try to leave it early. There will probably also be costs associated with the new deal. Make sure all of this is factored into your decision and if in doubt, talk to us.

How much equity do I need to remortgage?

If you need to borrow more than 90% of the value of your property (LTV) then you’re unlikely to find a better rate than your lender’s Standard Variable Rate (SVR). As a rule of thumb, the lower your LTV the better rate you are likely to secure, up to 65% LTV. Also, once your loan falls below a certain amount it may not be worth switching lender simply because you are less likely to make a saving if the fees are high. In fact, some lenders won’t even take on mortgages below £25,000. Ask our experts for advice if you need it

(1) HSBC, November 2014
(2) MSE, June 2015
(3) MSE, June 2015

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