Remortgage

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Remortgage

Remortgage

Luke gives us the lowdown on remortgaging.

What is a remortgage and how does the process of remortgaging work in the UK?

A remortgage is switching over from one lender to another. The process is similar to any sort of mortgage. We will need the same sort of documentation, but the benefit is you’re already in the property.

Unlike a purchase application where you’re relying on vendors and third parties, you’re already in the property. So it’s a much simpler process in that sense. It also means the legal work is a lot easier.

In essence it is just switching from one lender to another. You might be with Halifax now, and you come to the end of a fixed rate deal and want to look at the best option possible – it might be that Nationwide have got the best deal for you, so you remortgage to them.

How long does it take to remortgage?

It will come down to how quickly the lender gets around to underwriting. But it’s a lot quicker than a purchase because the legal work doesn’t take anywhere near as long.

I would usually say it takes three to six weeks for a remortgage but it can depend on which lender you go to. Some lenders are quicker than others. For the legal work, four to six weeks is probably quite realistic. So in total it could take eight to 12 weeks.

How often can I remortgage my property?

As many times as you like, really. If somebody has say a 30 year term and they do a two-year fixed rate mortgage every time, they might remortgage 15 times. But theoretically you can remortgage as many times as you like – there are no restrictions on it.

Can I switch lenders when remortgaging?

Remortgaging is changing lenders. If you stay with your existing lender and take a new deal, that’s actually called a product transfer. It’s like when your car insurance comes up for renewal – you go on price comparison websites and you get something through from your existing provider.

Normally they’ve put the price up a little bit and it’s usually more competitive to shop around. That’s usually the case with remortgaging too. You might get a better deal elsewhere. If you do stick with your lender that is just a product transfer – a switchover of products.

What are the main reasons why people choose to remortgage?

People often choose remortgage to switch over to a better deal – especially if your current lender is not as competitive as someone else. But you can do it for any legal purpose. You can raise money for consolidating debts. You can raise money for home improvements or to buy another property.

You would just do that all in one go. You would switch over from your existing lender to a new lender and arrange further borrowing at the same time.

What happens to my existing mortgage when I remortgage?

The solicitor who’s dealing with it will request the redemption statement from your existing provider. As long as that’s enough to get that mortgage paid off, your existing mortgage is cleared. It is then placed with the new provider. If there is any surplus left, that’s paid directly to yourself.

What happens if I don’t remortgage after my deal expires?

If you don’t re-mortgage after your existing deal ends, you move on to the lender’s standard variable rate. Most people won’t do that unless there’s a genuinely good reason – for example, if you were looking to move home imminently.

That’s because the lender’s standard variable rate is usually a lot higher – perhaps 3% to 4% higher than a new fixed rate deal.

What factors should I consider when deciding whether to remortgage?

Most of the time if you come to the end of your fixed rate deal it will be best to go into a new deal. Staying on the standard variable rate for any length of time can be more expensive than moving over.

The only thing that may potentially make you decide not to remortgage is if you expect your circumstances to change. Perhaps you’re thinking you might move in a couple of months’ time, or you were going to take a new job or relocate.

If you go into a new fixed rate deal and then want to sell the property it might complicate things for you. That’s the only time I’d recommend not moving to another lender. If you’re planning to stay in the property for the foreseeable future, it would be much better to move on to a new deal rather than stay on the standard variable rate.

Can I remortgage if I have bad credit? Can I remortgage to consolidate my debts?

Yes, you can certainly do both of those. If you have bad credit, yes, you can move over. There are lenders that cover people with adverse credit like CCJs, defaults, missed payments etc.

If you’re already with a mainstream lender we would always have a look at what they would offer and your options in moving elsewhere.

If you do want to consolidate debts, again that’s absolutely fine. The only thing to weigh up is how much you will benefit – are you going to make a monthly saving by consolidating the debts? Do think carefully, as you’re moving unsecured debts like credit cards and loans and securing them against your property.

SPEAK TO AN EXPERT
We are very experienced in our field, so it’s safe to say that we will help you get the right advice free of charge, so that you can get the right mortgage for your personal circumstances and save money.

Will I have to pay any fees or penalties when remortgaging?

You wouldn’t have penalties unless you’re still in a fixed rate deal. For example, if you’re in a five year fixed deal, you’re two years in and decide to switch lenders, it’s likely you’d have early repayment charges.

Lenders usually charge a percentage of the loan – it does vary from lender to lender but some might charge you 5% in the first year, 4% in the second, 3% in year three etc. If you’re outside of that, the only fee is about £125 to redeem the mortgage. That’s dealt with by the solicitors and is usually covered by the remortgage funds.

How much could I potentially save by remortgaging?

You might make a saving going elsewhere, rather than staying with your lender. Often a lender’s existing customer deals aren’t as good as with another provider. You could save money by switching.

Just going back to the point about consolidating debts – that’s another reason why people remortgage. They pay off unsecured debts and save money that way. For example, if your existing mortgage is £800 a month and you’re spending £400 a month on unsecured debts, that’s £1200 a month in total. If you remortgaged and your new payment was £1000 including those debts, you’re saving £200 a month by remortgaging.

What documentation will I need to provide when remortgaging?

It will be a standard set of documents. If you’re employed we need payslips and if you’re self-employed then it’s either accounts or the SA302 – your tax returns. After that it’s usually just bank statements and ID.

It can vary from lender to lender. Some don’t require as much as others. We’d always tell you exactly what the lender will need to get the application sent in.

Will I need a new valuation or survey when remortgaging?

Not necessarily a survey. Every lender will do a valuation of your property to make sure it’s worth what you say it is. They might do a full survey and send someone out, but if you’ve got a lot of equity in the property they might just do a desktop valuation. That’s basically just looking at other properties in the area and seeing if they’re happy with the figure you’ve given.

If you’re already in the property, hopefully you’d be aware if there were any issues with it, but you can always have a survey done separately. That’s absolutely fine.

Is it harder to remortgage if I’m self-employed or a contractor?

If you’re self-employed or a contractor it’s not quite as simple in terms of the documents required from a lender. If you’re employed, it’s usually just the latest three month’s payslips or for a new job, a copy of your new contract.

If you’re self-employed, lenders take the income from your SA302s – or if you’re a limited company director it can be your accounts. For you’re a contractor it can be a copy of the contract or CIS statements.

It can be a little bit more tricky if you’ve only just gone self-employed, as you won’t have the proof of income needed. It’s a lot simpler if you are employed because it will just be pay slips or a copy of the contract for a new role.

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

Provided you’ve made all the mortgage payments, you should have built up equity in the property. It is rare for property values to decrease – over time they tend to rise.

If your property value does decrease, it just means you have less equity in the property.
But every time you’re making a mortgage payment you’re building a bit more equity.

A decrease could potentially limit your options. Perhaps you bought with a 10% deposit and property values have dropped and it’s now a 95% mortgage. That would limit the number of lenders you’ve got, but that being said, you could always look at a product transfer.

If you do remortgage, any lender you go to will do a value of valuation of the property to make sure it’s suitable security for them and worth what you’ve said it’s worth.

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

The advantage of a fixed rate is that you know exactly what you’re going to pay each month for a set period of time. If you do a two-year fixed rate you know exactly what your payments will be for the next two years – so it makes it a lot easier to budget.

The downside is if you fix at the wrong time. Say six months ago, interest rates were hovering around 6% – if you did a fixed rate deal then and they’ve since dropped to 4%, you’re paying 2% more.

The other disadvantage with a fixed rate is if you want to move and can’t transfer that existing mortgage over to the new property, there are penalties to leave it.

The advantage with a variable rate mortgage is if interest rates start to drop, so will your payments. But if rates start to rise then your payments will increase. You don’t have that security of knowing exactly what you’ll be paying for a set period of time.

Can I re-mortgage if I’m nearing retirement age?

Thankfully a lot of lenders have started to increase the maximum term. It used to be that a mortgage had to finish at age 70 – now, quite a few are going up to age 75.

Other lenders offer later life lending, where they’ll look at what your post-retirement income will be. Some lenders go all the way up to age 80, 85 and even 90, depending on your plans for retirement and what your finances will look like at that time.

How can a mortgage broker help if someone is looking to remortgage?

Assuming your broker is Whole-of-Market like us, they have access to every lender. We can go to whoever’s offering the best deal for your circumstances.

If you go to your existing lender they can only offer you their own products, so you might not be getting the best possible deal. With a broker who can access many lenders, you can potentially make a saving.

You’re also getting tailored advice for your circumstances. So if you mention that you plan to move or you were starting a family and you live in a smaller starter home, a broker won’t suggest a five year fixed deal. Getting that specific advice for your circumstances can be really important.

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.