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Remortgage
Emma and Lester are here to give us a recap on remortgaging.
Podcast approved by The Openwork Partnersh ip on 19/09/2024.
What is a remortgage and how does the process of remortgaging work in the UK?
A remortgage is a term that’s used when you’re coming to the end of your current mortgage deal with your current provider. You can potentially borrow more for certain reasons at that point in time, or you can move your existing balance, like-for-like, to another provider that’s offering a more competitive deal.
Remortgages are pretty similar to a house purchase, but without moving home. A solicitor will be needed to do the legal work and update the registers with the new lender’s details.
How long does it take to remortgage and how often can I remortgage my property?
It depends very much on the lender. Some lenders are incredibly fast and others aren’t. There’s just no way of knowing.
I would recommend that you speak to a broker six months before the end of your existing rate. This will not only allow them to look for the best deal at the time but also, with rates falling at the moment, it still allows you to switch on to another deal if a better rate comes up.
In terms of how often you can remortgage, you can do it as many times as you want. We would suggest leaving at least six months in between. But every time you remortgage, you will possibly be adding fees to the mortgage, which increases the amount that you owe. You also need to be aware of early repayment charges on your current mortgage deal as well, because you could incur quite a hefty cost to leave early.
Can I switch lenders when remortgaging?
Yes, you can go to a different lender – they may offer a more attractive deal than your current lender. Some providers have what they call ‘product transfer’ deals, which are essentially like an internal remortgage, moving from one deal to another.
If you’re looking to borrow further from the lender, you can potentially do that at the same time. But it’s not necessarily about switching lenders. It’s just down to what works out best for the customer and which is the most appropriate deal for them.
What are the main reasons why people choose to remortgage?
Mainly it’s because you’re coming to the end of your deal and you don’t want to go on to the Standard Variable Rate, which is set by the lenders. This is usually three to four percent above the Bank of England base rate.
It’s set by each individual lender, so you could be jumping from a much lower rate up to a very high rate. Instead, we’re going to look for the right deal on the market for you.
People also choose to remortgage to borrow more money for home improvements, or possibly debt consolidation, but that’s not always a given. Another reason is to remove people from the deeds. Maybe you’ve split up with your partner, you no longer want them on the mortgage. These are all common reasons to remortgage.
What happens to my existing mortgage when I remortgage?
Your existing mortgage will be paid off. As I mentioned earlier, solicitors are always involved in a remortgage to another lender. The new lender will send the mortgage amount to the solicitors, and then the solicitors will use that to repay the debt with the current lender and your account will be closed.
If there’s any further borrowing, the solicitors will send the additional money to your bank account.
What happens if I don’t remortgage after my deal expires?
If you don’t remortgage after your deal expires, every lender has a standard variable rate, which is usually higher than their current deals.
You would automatically transfer over to this standard variable rate when your product ends. It will be clearly noted in your mortgage offer as to when your product ends, with an estimate at the time of that standard rate.
It changes quite frequently, so it’s worth finding out from your mortgage lender what the rate would be when your deal comes to an end.
What factors should I consider when deciding whether to remortgage?
You need to consider whether or not you want to pay the higher standard variable rate with your existing lender.
It can depend – if you’re coming to the end of your whole mortgage and you only owe £5,000, you wouldn’t want to remortgage that onto a new deal with another lender. You’d be adding fees to the mortgage and effectively, you’ve only got six months to a year left to pay.
On a standard variable rate with that size of loan, the difference is only pence. It’s when you’ve got a higher mortgage amount that the standard variable rate will be expensive for you.
Another consideration is if you’ve had any bad credit since you applied for the mortgage. Have you missed any payments? Some lenders will not allow you to move to them in this situation. If you’re in arrears with your current lender, they may not allow you to do a product transfer unless you have made the arrears up.
Can I remortgage if I have bad credit? Can I remortgage to consolidate my debts?
It depends on the severity of the adverse credit, whether it’s missed payment, defaults or CCJs. It can impact the interest rate you’re offered, because most lenders have set criteria around these events.
You can remortgage to consolidate debt. It is subject to affordability checks and meeting lenders’ criteria, as some stipulate a maximum cash value that can be raised. Or it may be up to a certain Loan to Value level, so you need to keep, let’s say, 15% equity in the property.
It may be that you can’t necessarily consolidate all of the debts you have, but you can cover a certain amount of them.
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Will I have to pay any fees or penalties when remortgaging?
There will be fees to pay. The main fees to pay are known as telegraphic transfer fees of around £35 a time. That moves the money from the new lender to the solicitor and from the solicitor to the old lender.
Most deals come with either cash back or free legals. That free solicitor is for the basic work – for anything on top of that , you will have charges to pay.
The other thing is to make sure that you don’t complete on the new mortgage until your early repayment charge has expired, which is something you would tell the solicitor. They will set completion up to happen as soon as possible after the early repayment charge has expired.
Most deals come with a free survey, which is a basic survey undertaken on behalf of the lender. You won’t necessarily get a copy of it.
Most lenders also have what’s also known as an arrangement fee to book the rate for you. If you are taking a fixed rate, that fee could be £999, £995 or £1495, depending on the lender. Subject to the lender’s criteria, that can be added to the loan. If you’re adding fees to the loan, you have to bear in mind you’re paying interest over a longer period of time by doing so.
How much could I potentially save by remortgaging?
It really depends on the interest rate of the new deal versus your current deal. Over recent years, interest rates have gone up.
A customer might have a 1% rate at the moment. They’re coming to the end of that and will move to a 3% or 4% deal – which means their payments are going to be higher. On the flip side, you could have a higher interest rate at the moment of say 7% or 8% in which case your new rate is going to be lower.
It’s just down to the individual circumstances and what’s available on the market at the time.
What documentation will I need to provide when remortgaging?
It’s virtually the same as when you’re buying a property. We need the last three months’ payslips, the last three months’ bank statements for all accounts used regularly and ID documents. For the self-employed we need tax overviews and tax computations, and for limited company directors, some lenders will take dividends and salary and others will take retained profit after tax and salary, based on a copy of the last three years’ full accounts.
Will I need a new valuation or survey when I remortgage?
The lender will need to do a basic survey or valuation to make sure that the property is suitable security for them to lend against. Most lenders will offer a free valuation to remortgage customers and, depending on the Loan to Value, may do what’s called an automated valuation.
You don’t actually have to have someone come out to the property to have a look around. It’s all done by computers and statistics. You may not even know that it’s being done in the background.
Is it harder to remortgage if I’m self-employed or a contractor?
Not necessarily. As long as you fit the lender’s criteria and you provide all the documents your broker has asked for, then it should be as straightforward as if you were employed.
What happens if my property value has decreased since I initially obtained my mortgage?
This can happen in some cases, and is called negative equity. It’s more likely if you put down a small deposit when the property was purchased.
In this event, the current lender may be able to offer you a product transfer that is better than their standard variable rate. It’s down to each lender’s product offerings at the time. If you are in negative equity, it’s unlikely that you’d be able to borrow anything further against the property at that time.
What are the advantages and disadvantages of fixed rates versus variable rate remortgages?
Fixed rates give you the stability of knowing exactly what you’re going to be paying for the next two, three, five, seven, or even 10 years. However, the disadvantage at the moment is that rates are falling [podcast recorded in August 2024].
You might fix onto a rate and if you’ve gone with a five year deal, in two years rates might have come down. However, if rates have gone up, you’re at an advantage.
A tracker rate follows the Bank of England base rate and a discounted rate follows the lender’s standard variable rate. Some of these deals come with no early repayment charges, so you could go on to these rates while they are falling and then fix at a later date.
But when you do that, you may have to pay another arrangement fee. It could be a double whammy of adding fees to the loan again and paying interest over a longer period of time. So fixed rates give you stability, while with trackers and discounted rates you take a risk on whether the rates are going to continue to fall or if they’re going to go up.
Can I remortgage if I’m nearing retirement age?
Yes, but it is subject to lender’s criteria. A lender would look at your current income, whether that’s employed or self-employed, up until you decide to retire. If the mortgage term goes past your state retirement age, or you’re going to retire at age 70 or 75, a lender will look at your personal pension income and your projected state pension to make sure the mortgage is still affordable post-retirement.
How can a mortgage broker help?
In this current market and with rates as they are, using a broker is a very good idea. Rates are changing literally daily. You could book onto a rate with a broker today and then, all of a sudden that rate could come down.
A broker like Yellow Brick will keep an eye on these rates. If you’re eligible for the new rate, we can see whether we can reduce that rate straight away. Using a broker, not only do you get some of the best of the deals on the market, you also get the best advice available.
We’re here to give advice and make recommendations. We’re qualified experts in what we do, with years of experience between us. We look for the right deal on the mortgage market that suits your needs and circumstances – because every customer is different.
We review your income and expenditure to check affordability and make sure you can afford the mortgage, both now and in the future. We also look at the protection side as well, so you can stay in your home if the unforeseen were to happen.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.
Approved by The Openwork Partnership on 19/09/2024.
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