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James Miles explains everything we need to know about remortgaging.
What is a remortgage and how does it differ from a regular mortgage?
Most people think of a regular mortgage as when they buy a home – that’s more commonly talked about. People get excited when they buy their first home, but then once you have that mortgage in place, it will come up for renewal on a certain date.
Many deals have an interest rate for a set period, and when it finishes we need to review it again. A remortgage is where you review new mortgage options with your existing lender or search the market for a more suitable deal for your circumstances.
How does the process of remortgaging work in the UK?
It’s always best to speak to a professional about which route is best for you. The first step is a fact-find, so that the broker understands your position and what you’re looking to do.
Are you just looking to renew a rate to save money, or find a more suitable deal? There are different types of mortgage on the market: fixed rates, trackers or offsets, for example.
You might have a change in circumstances. You may be looking at borrowing money to improve your home. Or you may be looking to overpay or extend the time left on your mortgage. There can be a number of reasons why you might remortgage.
That fact-find is really key. It’s important your broker understands your income, outgoings and your credit history. With remortgaging, we will always look at whether you should stay with your existing lender or look at moving to another lender that has a more suitable deal for you. That process, depending which route you go down, will take between 30 to 60 days.
If you’re staying with an existing lender it might be a bit quicker. If you’re moving lenders, you may need to have your house revalued and you may need a conveyancer to help you switch lenders.
How long does it take to remortgage?
Everyone’s different, and it depends what comes up in the process. We’ve seen remortgages go through in a couple of weeks. The biggest advice is always to prepare and allow lots of time to speak to a mortgage professional and find your new deal.
If you wait until your mortgage expiry date, there might be more pressure. Your rate may go up if the new mortgage doesn’t go through in time. So while the timescale can be as little as a few weeks, if it’s a more complicated situation where maybe you’re consolidating debt or borrowing more money, the lender might ask a few more questions. You should anticipate that might take a little bit longer.
What are the main reasons why people choose to remortgage?
Ultimately it comes down to saving money. People want to save money on their interest rate which will ultimately make them better off each month.That’s the number one goal.
But life events can be huge. I always say to my clients, think back to five years ago – what were you doing? Then think forward five years – what could you be doing? That’s a big question, because it covers a ten year span.
People might decide to extend their homes, get their gardens done or convert their garages. Plus, with the cost of living increasing, we’re seeing a lot more debt consolidation. That’s where you might have unsecured debt on credit cards, car finance and loans and it’s becoming unaffordable. If you combine those debts into your mortgage, you may be able to reduce the amount you’re spending on all those payments.
You might also want to borrow money for school fees or to help children buy a home. We also help people buy a second home if they’re looking to get into Buy to Let, as part of planning for their retirement. You may want to borrow money from your current home to buy another one. Those are probably the most common reasons we come across.
What happens to my existing mortgage when I remortgage?
This goes back to planning and preparation being absolute key. The majority of clients will have a fixed rate which might run for two, three or five years.
If you don’t do anything at expiry, you’ll go on to the lender’s standard variable rate which at the moment, in November 2023, is an additional 3% on the typical interest rate. That will mean a really big jump up in payments.
You don’t need to go on to that, because there are other deals offering you the same flexibility of a standard variable mortgage, at a cheaper rate. If you do nothing and sit still, you’ll probably be getting charged more unnecessarily.
What happens if I don’t remortgage after my deal expires?
If you don’t do anything, you will just go on to that standard variable rate which is typically higher than you’ve been paying. Normally there are better deals around, so there isn’t really a good reason to go on to the standard variable rate in the current market.
Obviously, things can change and products will change, but at the moment if you do nothing, you’ll only be paying more money than you need to.
What factors should I consider when deciding whether to remortgage?
When remortgaging, you want to be in the best financial position possible, so that a new lender will see you as an appealing customer.
Ensure that you have up-to-date payslips with the correct address on. If you are self-employed, get the most up-to-date accounts or personal tax returns.
You are typically going to be credit checked, so do your best to keep your payments up to date. There are many credit reporting systems that you can check to see if you’re up to date and on the voters’ roll. That’s a really key one.
If you’re unsure, speak to a broker because they’ll talk you through the plus and minuses on your credit report. We also need access to your bank statements to look at your outgoings.
It’s a good idea to always keep on top of your spending so when you come to remortgage it can be presented in the correct manner.
Can I remortgage to consolidate my debts?
Consolidation is becoming more and more common as the cost of living increases. It can reduce the amount and total of payments you have going out each month.
You might have a credit card or a loan. Maybe you spent on an extension or a big holiday. Combining those debts into a mortgage can reduce your monthly outgoings.
The downside is that you are extending those debts over a longer period so you may pay more interest – so it’s really important to work out the pros and cons and whether it makes sense for you.
Speak To an Expert
Come on in and be quite forward with what you’re after – just be very honest with your mortgage broker. It’s good to make sure that we know absolutely everything about you. That way we can’t be blindsided by a lender. An open book policy is very good when coming to see your mortgage broker.
Can I remortgage if I have bad credit?
Bad credit could just be a blip on your file, like a late payment. Some clients might have a history with CCJs, IVAs or debt management plans. There’s a number of factors that come into bad credit.
It’s really important that you have access to the whole of the market – and we work with over 90 lenders. It means we can find the right one for your situation. A lot of lenders specialise in helping clients with bad credit and people who are working to improve their situation.
We have some lenders that will look at clients that are struggling at the moment. They understand that consolidating debt onto that mortgage will help them in the future. So remortgaging with bad credit can definitely be done.
Will I have to pay any fees or penalties when remortgaging?
It depends, because there’s lots of different scenarios. Typically, in a fixed rate mortgage you tend to have early repayment charges if you remortgage before the end of your fixed period.
It could range from 5% down to 1% of your mortgage balance – so it’s really important if you’re remortgaging to secure a rate six months before the end. You can then switch as soon as those early repayment charges expire. So while penalties can be charged, you can avoid them.
With regards to fees, there may be some setting up fees from the lender, but there are lots of no-fee deals on the market. However, some mortgages with lower rates might come with a fee of £999. We can work out which approach is best for you.
If you stay with your existing lender, you won’t need to pay any legal costs, but if you move lenders there can be legal fees. We can often get cash back to cover that from the new lender. The final cost to consider is that there may be a broker fee for the advice given – and that depends on your circumstances.
What are the current interest rates for remortgaging?
We’re recording in November 2023 and rates have been going up and down. A year ago there was a big shock in the market and interest rates rose to the highest in years.
They have gradually been coming down, and a typical five year fixed rate today on the lowest Loan to Value banding is 4.64%. That’s very exciting for us, because about a year ago it was over 6%. That said, we don’t know what the rates will be next week. They can go up, but if so, hopefully they will go down again.
How much could I potentially save by remortgaging?
It’s hard to put a figure on that one. We have to think about what happens if you do not remortgage. The lenders’ standard variable rates are more than 8% or 9% at the moment, and the lowest rate as of November 2023 is 4.64% – that’s a massive saving.
We also mentioned consolidating debts. I think we can agree that while everyone’s circumstances are different, there are a lot of savings that can be made.
What documentation will I need to provide when I remortgage?
We can secure a rate six months in advance. Actually, the optimum time to speak to your broker is seven months before, because that gives you a month to get your paperwork in place.
If you’re employed, we need three months’ pay slips. If you’re self-employed, whether you’re a sole trader or have a limited company, we’ll be looking for two years’ tax computations, tax year overviews, and two years’ accounts.
Some of our clients aren’t fully aware of the names of these documents, in which case refer to your accountant or ask your broker for more advice.
Most lenders are also going to ask for your bank statements, and we always want to have a look at those – so have three months’ statements on all your current accounts. It’s quite common for people to have more than one now.
You might have your wages paid into one and bills go out from another. We want to see all of them. Another helpful step is to download a credit report, because it allows a broker to fully see your expenditure and helps us give the right advice.
Can I switch lenders when remortgaging?
You can switch lenders at any point, but it depends on the setup of your mortgage. The lender you’re currently with will offer you a new deal, and you can speak to your broker about that.
It’s quite common for existing lenders to offer good deals to existing clients. Historically, moving lenders meant better deals, but now with rates changing daily it’s important to have a view of the whole market. Switching lenders is definitely an option, but get advice on whether it’s worth it.
Will I need a new valuation or survey when remortgaging?
Your existing lender will hold an indicative valuation on what your property is worth based on the day you bought it and data they have. But you may have improved the property, in which case we can request a new valuation on your house.
If you’re switching lenders, they’re definitely going to want a valuation. They might have data on your house already, or they may send someone out. The good news is that there’s typically no cost involved in that. If your valuation is higher, you should have more equity in your home and so you may gain a lower interest rate.
Can I remortgage if I’m self-employed or a contractor?
Self-employment and contracting is more specialist and that’s where brokers are used a lot. We have access to lenders that specialise in these markets. You definitely can remortgage in those situations.
Your tax computation typically tells us how much money you’ve drawn out of your business, but not a lot of clients know that we can actually use your net profit towards your mortgage in special circumstances.
A lot of businesses hold that money to keep running. If you made a net profit we may actually be able to get you more money from a lender. That’s really key.
Contracting is very specialist. Some lenders see you as self-employed, but you can be deemed as employed by some lenders. Generally having a six month track record is important.
What happens if my property value has decreased since I initially obtained my mortgage?
There’s a lot of talk about house prices going down, but on the latest index from Halifax, they increased this month (as of November 2023).
If your property value has decreased, don’t panic. There’s no need to worry. Your existing lender will always offer you a new deal. What’s important is how much equity you’ve got in your home – and even if it has decreased, you still may be able to get a mortgage with a new lender. We’ll just review it as normal.
How often can I remortgage my property?
You could remortgage every day if you really wanted to, but you may have more fun things to do in your life. It’s more about when remortgaging is appropriate.
Typically, you should remortgage when your existing interest rate is finishing, or if you have a life event. The biggest thing to factor in is whether there are any early repayment charges to leave your existing deal, and what setup costs there are on the new deal.
What are the advantages and disadvantages of fixed rate versus variable rate remortgages?
Fixed rates are more commonly recommended, because most people like to know that they’re secure. It means they don’t have to worry about fluctuating interest rates in the market influencing what they pay each month.
Generally, it’s easier to budget because you know what you’re paying for a set period – two, three, five or 10 years.
Variable rate mortgages are becoming more popular, because some people like to take a bit of a gamble. A variable rate might be slightly lower than a fixed rate when you remortgage, and if the Bank of England interest rate falls, that rate could fall further. However, if it goes up, you could be worse off.
You can get fixed rates without any tie-ins, but it’s not very common. That’s where a variable rate could be an advantage, especially if you’re looking to pay the mortgage off early or move home. A variable rate can easily be found without early repayment charges.
Can I remortgage if I’m nearing retirement age?
This is really important, because the population is growing in age and people are borrowing later in life. We have lenders that specialise in lending near retirement.
The most important factor is if you’re going to stop working and receive a pension, can you still afford that mortgage? You don’t want to be left with a mortgage that you can pay while you’re earning, but when you get to retirement you cannot afford it.
Again, everyone’s circumstances are different. People will usually get the state pension and they might also have a private pension, so we’re seeing lenders going up to age 80 or 85 in the right circumstances.
What other suggestions do you have on remortgaging?
I’d echo that preparation is key, and if you’re not sure when to remortgage, speak to a professional about it. If you know the end date of your rate, prepare seven months in advance.
We can hold your rate for six months, and should the interest rates go down within that six month window, we can change deals for you. It’s a win-win situation, because if the rates go up, we’ve already secured that lower rate.
Think carefully before securing other debts against your home.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Your home may be repossessed if you do not keep up with your mortgage repayments.