Remortgaging Guide for UK homeowners
Remortgaging allows you to switch products, lenders, or both, to secure a better deal or maybe release equity.
It’s never straightforward to remortgage, as you’ll need to shop around and investigate how and where you’ll get the best mortgage deal. The process is long, but it can be highly beneficial depending on your situation and the deals you find.
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The UK’s most utilised mortgages are fixed-term deals of two or five years.
When your contract ends, you’ll likely decide to remortgage, and with interest rates on the climb, you’ll want to put in some extra effort to ensure you get the best fixed-term interest rate you can for the term of your remortgage.
In this guide, we’ll explain what remortgaging is, what you need to watch out for, the importance of things like using a mortgage broker, revaluing your property and why you should at least consider switching to a different lender for your remortgage period.
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What is Remortgaging?
When you take out a mortgage for the first time, you commit to a significant expense over an extended period, with most mortgage periods lasting at least 30 years.
The beauty of mortgaging is that you can remortgage during this period. You can sign up for initial shorter periods and “remodel” your mortgage to suit your circumstances as time passes.
Mortgages in the UK usually come with an initial fixed-period low-interest rate before changing to a higher rate after a stipulated period.
A borrower may sign a long-term mortgage, but this doesn’t mean that keeping the original agreement with the original mortgage provider is a prerequisite or even the norm these days.
Like several other fixed-term offerings, and you can think wifi or electricity deals here, you can change your mortgage after its initial fixed-term period.
Changing lenders has become the norm more than the exception over recent years, and the way of our world means it’s foolish not to seek out a better and more cost-effective deal if one becomes available.
Taking out a new deal on an already-mortgaged property instead of sticking with a current one is known as remortgaging.
You, as a borrower, are at liberty to remortgage to find a deal that better suits your position, financial or otherwise, and to borrow more against your home’s value to fund home improvements, should you choose to.
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How Does Remortgaging Work?
You take out a new mortgage when you remortgage to improve your existing mortgage deal. The latest long-term loan will be comparable to the outstanding amount on your current mortgage, which you would settle with the proceeds from the new loan.
Even if you own your house and have no mortgage to pay, you can remortgage the property to borrow against it. You can also remortgage for more money than that outstanding on a current deal to release equity and free up cash for an unrelated reason.
If you appoint a mortgage broker to look into the best mortgage options for you, it’ll leave you free to ensure your personal circumstances leave you in a position to prove you can meet your mortgage repayments.
Remortgaging operates on the same principle as taking out a first-time buyer mortgages, and mortgage lenders will require the same criteria from you to ascertain your eligibility.
You’ll have to prove you can afford the monthly repayments, provide a good credit report, and supply a new lender, or your current lender, with details of your personal circumstances.
Again, like an original mortgage loan, you will likely require some form of deposit for a remortgage deal, which would typically take the form of retained equity already in your property.
If you have a home worth £100,000, for example, and need to borrow £75,000, you would use the additional £25,000 as your deposit, which equates to a 75% LTV (loan to value) and a 25% deposit.
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Why Should You Remortgage, and what is the benefit?
Remortgaging makes sense to save money by switching lenders or negotiating a new deal with your current lender to avoid your lender’s standard variable rate (SVR).
With most mortgages, after an initial stipulated period, your fixed-rate mortgage becomes an SVR mortgage, meaning it has an interest rate set only by the lender.
An SVR rate will typically be higher than another mortgage you could get, and lenders can increase interest as and when they see fit.
With a lender’s standard variable rate mortgage, you can pay a lot more for your monthly repayments, and you would continue to do so until you decide to remortgage.
Even if fixed mortgage rates are more expensive than when you took out your initial mortgage, you will likely still benefit financially by remortgaging.
A further benefit from a remortgage occurs because your property has built up equity through the years. As you repay your mortgage, the percentage of your property owned by your mortgage lender decreases, and you will own a more significant portion, or equity, yourself.
The greater the percentage of your home you own, the more equity you have and the better your chances for brokering more economical mortgage contracts.
This equity is calculated by comparing the outstanding mortgage amount to the property’s value and is known as the loan-to-value (LTV) level. A mortgage provider offers cheaper mortgage deals per lower LTV level.
Most fixed-rate mortgage deals will allow you to make additional annual payments equating to 10% of the outstanding amount without being liable for early repayment charges.
Some are even more limited in what you can overpay, and other additional amounts could incur an early repayment charge of 1-5% of the total outstanding.
If you want to decrease your mortgage at a faster rate, it makes sense to wait until your mortgage renewal period arrives, and you can then remortgage for a lesser amount.
Remortgaging makes even more sense if you’ve received an inheritance or similar windfall and want to use it to decrease your current mortgage.
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Choosing the Right Time to Remortgage
Right now, the Bank of England is continually raising interest rates to curb inflation levels, so if you’re a homeowner coming to the end of an existing fixed mortgage period, it will make sense for you to complete a mortgage application to remortgage as soon as you can.
You can apply for a new mortgage six months before your current mortgage ends, as mortgage lender quotations generally remain in place for three to six months.
If you can complete your remortgage application and see it approved before the expiration date of your current one, you’ll easily make the transition without needing to consider the SVR.
It’s vital to know when your current mortgage ends and resist ending your current agreement early, as you don’t want to pay an early repayment charge.
The end date may not necessarily be two or five years from the start date, as certain lenders, including Nationwide, are known to fix entirely different completion dates.
In cases like the above, you might discover that you have a different time frame to remortgage in advance, so when you manage to remortgage, add an arrangement date to the new document so that you can carry out any future remortgaging in advance without incurring penalties. An informed mortgage broker can assist you in making this stipulation.
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For What Amount Can You Remortgage?
The outstanding amount you owe on your property determines your remortgage amount, the property’s value, your personal and financial circumstances, and the provider’s specific lending criteria.
No remortgage deals are ever the same, so you should seek advice and assistance from a professional expert.
Many lenders and other websites offer remortgage and mortgage calculators, which can help you calculate what amount you might qualify to borrow based on your financial situation and property value.
These results are only guidelines, and a qualified mortgage broker would provide more targeted answers.
Existing Lender: Stay or Change?
Does it make more sense to remortgage through your existing lender or change to a different one?
The choice is entirely subjective and depends on where you will be able to find the deal best suited to you and your personal preference. Moving to a different lender might pay as you may find a cheaper or better mortgage option elsewhere.
An experienced mortgage broker can assist you in your decision as they constantly access the market and, with the relevant information, can match you and the deal most suited to you.
Their knowledge and experience can help you decide which mortgage options you should include and for what duration you should remortgage.
Remaining with your existing lender can make more sense as they’re still offering the most suitable deal. Doing so would entail simply moving from one product to another, known as a product transfer.
A product transfer also means you’ll skip certain fees connected to switching lenders and shouldn’t incur valuation and legal costs.
A product transfer is much quicker to complete than a remortgage, taking days instead of weeks or even months. This time saving could be significant if you are looking to avoid moving onto a standard variable rate.
There are benefits to both options, but it won’t hurt you to investigate remortgaging with a new lender if you have time to change, and you’ll save money by doing so.
A top broker will help you properly understand each option and provide you with several deals to consider, whereas your current provider will only provide insight into their own deals.
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How Can a Mortgage Broker Assist with Remortgaging?
Remortgaging can be difficult if you’re unsure how to find a deal that suits your budget and circumstances.
Each lender will have different criteria, some of which might rule them out as a suitable match for you. If you’re unaware beforehand, visiting other lenders can take up much of your time and effort, ultimately for no reason.
Suppose you approach a broker instead of directly approaching lenders. They would only require a single affordability and credit history check and be able to apply the results to available deals that afford realistic alternatives.
Mortgage brokers are familiar with individual lenders’ rules and qualifying criteria. In addition to credit ratings and affordability, specific lenders might not be happy to lend for certain non-standard construction types.
Others may reject potential self-employed borrowers or those who have just started new employment.
Mortgage brokers apply their knowledge of your circumstances and will base their list of suggested lenders on your criteria.
They will know if a specific lender is likely to consider your remortgage application and will provide insight into the amount you’ll be able to borrow and how any credit file problems could impact your application.
The primary role of a broker is to assist in finding the best and most affordable deal for their clientele while matching you with a lender who will be amiable to your set of circumstances and will accept your remortgage application.
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FAQs
What documents do they look at when you remortgage?
Your last three months’ bank statements and pay slips. They’ll want your last three years’ accounts and tax returns if you’re self-employed.
Can you get refused for remortgaging?
Yes, but if you contact a broker, they will put you in touch with lenders who may still help you.
Conclusion
Remortgaging might be less complex than applying for a new mortgage, but several potential problem areas remain to overcome, especially if you’re not adequately familiar with the process.
A primary reason to remortgage is to save money on your new deal, where a remortgage specialist will certainly assist you.
At Loan Corp, we pride ourselves on our ability to provide the most cost-effective and problem-free solutions for our clientele.
Call 0808 301 9509, and one of our certified, highly skilled team will make it their mission to assist you in ways that suit your budget and peace of mind.
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