Remortgage
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Remortgage
What is a remortgage and how does it differ from a regular mortgage?
A remortgage is where somebody that already owns a property is coming to the end of their current fixed period. Rather than going on the standard variable rate, which is normally pretty high, we find them a new mortgage deal.
For existing customers, we start looking six months beforehand. We look at the most suitable options for them at that time and remortgage onto that deal. We would recommend a product and go through the application process just as with any other mortgage.
The main difference from other mortgages is that you don’t need to find a property. Generally the remortgage legal process is a lot simpler and more streamlined.
How does the process of remortgaging work in the UK? How long does it take to remortgage?
Generally I would recommend you come to me towards the end of your fixed rate period. We would take you through the process. It’s generally a lot quicker than if you’re purchasing a property. It can take up to six weeks. I’ve had them complete in two weeks but I wouldn’t recommend changing that late.
We start looking six months ahead because a mortgage offer lasts six months. Then, if the rates are going to increase, we’ve secured something lower. If they come down between now and the end of your fixed period we would just switch the product at the lowest possible point. That way, you’re paying the least possible amount for your mortgage.
It’s good to allow a good amount of time in case there are complications along the way. Sometimes things can happen with the solicitor or the lender may ask for certain extra documents and more assessment is involved.
What are the main reasons why people choose to remortgage? What factors should I consider when deciding whether to remortgage?
The main reason is that you’re reaching the end of the initial period. But people do remortgage for a variety of reasons. They may have put themselves into a debt situation and want to consolidate some of their debts into the mortgage.
They may want to remortgage for home improvements like an extension or a loft conversion. Sometimes people remortgage because their son or daughter is getting married, or they want to release some money from the equity built up over the years in their property to pay for something important in life.
In terms of the factors to consider, just ensure that your credit file is up to date so you’re in a positive position with lenders. Make sure you haven’t missed any payments, especially in the last two years.
Having a good credit record gives us more options with lenders. If your income and commitments are at the right level we can look at the maximum borrowing potential available. If you have any questions about any of this just get in touch and we can explore it all with you.
What happens to my existing mortgage when I remortgage?
You don’t need to contact your existing lender at the beginning unless you need to find out exactly what’s left on it. When we’ve arranged the new mortgage, a week or two before the current mortgage expires, your solicitor would get a redemption figure from your existing lender. That would be the amount that’s paid off.
The solicitor moves the money around – they pay off the existing lender and ensure that the new mortgage starts the day after your early repayment charge finishes on the old one. It all goes through smoothly.
When you fill in the solicitor’s details when they send you the Introduction Pack, just make sure the day you want it to complete is the day after the current deal expires.
Will I have to pay any fees or penalties when remortgaging?
The only penalties would be if you made a mistake with your solicitor about when you want to complete.
Say you complete ten days before the fixed period ends – you would be liable for an early repayment charge. So you need to find out exactly when your existing deal finishes. The day after your existing deal finishes, there won’t be any penalties or fees.
The lender’s product fee and broker fees will still apply. A lender’s product fee is often either £999 or zero. When we are sourcing the most suitable deal for you we compare deals with and without fees and look at the interest you would pay over the two or five year deal.
How much could I potentially save by remortgaging?
It depends on what the rate is on your existing mortgage and on the new one. We’re recording this in March 2024 and currently, the standard variable rates that people will go on to are between 8% and 10%. You would save a lot by remortgaging before you go onto that standard variable rate.
For example, if you took a two or five year deal at half that rate or even lower, you could potentially save thousands and thousands over that time. I can’t really put a figure on it as it will be specific to your situation, but you could save a lot of money. We will run through all the options with you to find something suitable for you to go for.
What documentation will I need to provide when remortgaging?
It’s pretty much the same as for a purchase. If you’re employed you would need your three latest payslips. If you’re paid a bonus you’d need two years of bonus pay slips, whether that’s paid quarterly or annually. Some lenders that may use one year’s bonus, if we need to use that for affordability.
If you’re self-employed, generally you need to have been trading for two or three years. We need those years’ SA302 tax calculations and tax year overviews. If you’re only been trading one or two years we will need those – we’ll never need more than three years. We do have options if you’ve only been trading for one year.
With the ID side of things we will need either a driving licence or passport along with proof of address and your latest three months’ bank statements.
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Buying a new home can be a stressful time for anyone. Our job here at Brick2Brick Mortgage Solutions is to make the process a lot easier, taking the stress out and making the clients journey smooth and so much more.
Can I switch lenders when remortgaging?
Yes, and these are the options that we would look at. We would look at your options if you stayed with the same lender, and we will also look at new lenders as well.
We look at the whole market to make sure we’ve found the most suitable and affordable option for you.
Will I need a new valuation or survey when remortgaging?
Yes – even if you remortgage with the same lender. There can be disadvantages to that, though. I had one the other day where the clients bought their flat for £220,00 two years ago. The remortgage value came up at £217,000, although the couple thought the property was worth £250,000. It means the Loan to Value ratio is lower, so the rate is higher.
Lenders often won’t do a physical valuation unless you’ve added square meterage to the property with an extension. But a new lender generally would send a valuer round so you’d probably be likely to get more than the £217,000 in that example.
So you do need a new valuation, whether you stay with the same lender or a new one. Sometimes it’s a physical valuation, other times it’s a desktop one. If it’s an automated system with your current lender you have to take that, whereas if it’s a new lender you have more flexibility on the valuation.
We would need to look at the situation. If it’s a low Loan to Value it might just be an automated valuation. We might choose a lender that does a physical one – these are all things we can explore at the time.
Can I remortgage if I’m self-employed or a contractor?
Yes, if you’re self-employed or a contractor it’s completely fine. If you’re coming to the end of a fixed period, but you’ve only been self-employed for six months or contracted for six months, that could be an issue. It may be best to stay with your current lender.
You need to be self-employed for at least a year. Most lenders need to have two years’ contracting experience. Some lenders are okay with less, as long as you’ve been in the same line of work for a while. But yes you can remortgage – we would just look at your personal circumstances to find a lender to recommend for you.
What happens if my property value has decreased since I initially obtained my mortgage?
This happened in the market crash in 2008 – it was an issue with a lot of lenders. They were offering more than 100% mortgages, they weren’t assessing cases on income multiples and they were letting people self certify what they earned.
That’s why the crash happened. A lot of people ended up in negative equity – which isn’t the best situation to be in. Negative equity is where the mortgage is more than the property is worth.
Lenders won’t touch that. Even if you buy a home with a 5% deposit, that risk is there. Generally, properties don’t come down in price, but you can’t guarantee it.
Generally it’s always good if you’ve got 10% equity or more. Then, if the property value has decreased you could probably still get a 95% mortgage. If you don’t have that 5% equity, you would probably only be able to stay with the same lender. We would look at the whole market to make sure we’ve exhausted all options before you do that.
How often can I remortgage my property?
You can do it as many times as you want. If you’re in a fixed period and you want to remortgage during that time, there would usually be an early repayment charge of at least 1% of the loan.
But in theory, you can remortgage as many times as you want. It’s just best to make sure it’s at the end of the fixed period.
What are the advantages and disadvantages of fixed rate versus variable rates remortgages?
The main positive of a fixed rate is that you have stability of monthly payments. You know exactly what’s going out of your account every month. If rates rise, you are secure – there’s no worry there during the fixed period.
The negative is if rates come down during the fixed period, you’re tied into that higher rate. You generally have to pay a penalty if you want to come out early.
A tracker rate follows the Bank of England base rate. So if the base rate drops, so does your mortgage payment. Also, you’re not usually tied into that – you can come out any time. The negative here is if rates rise, your tracker rates will also increase, so you don’t have that stability of monthly payments.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME.
YOUR HOME 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.
