For most people, their mortgage is their biggest financial commitment, taking up a large portion of their monthly outgoings. Making sure you have the best deal is a no brainer and you can make huge savings each month. If you already have a mortgage and are looking to move lender, or if you own the property outright and want to borrow money against it, we have the definitive guide to the remortgage conveyancing process.
Getting A Remortgage Quote Can Save You Money
When Shouldn’t I Remortgage?
Reasons to Remortgage
There are many reasons why you might be thinking of remortgaging but the main reason is going to be saving money.
Current deal is about to end: many introductory mortgage offers only last a short time, often two to five years. This is the typical length of time offered on a fixed rate, tracker or discount mortgage.
The most common time to remortgage is when this fixed or introductory tracker or discounted rate on your mortgage ends. Once your introductory mortgage offer has ended, you will be on the lender’s Standard Variable Rate (SVR). It is unlikely this will be the cheapest option, so remortgaging is going to be something you will have to think about. You are well within your rights to enquire with your current lender about a new offer which might reduce fees. Your lender may be happy to retain your custom so this should always be your first port of call.
Important aspects to remember are:
- Interest rates change regularly. What seems like a great deal today might not be available when you come to switch.
- Costs and fees of moving your mortgage should be taken into consideration; to get a true picture of whether it’s worth remortgaging.
Other Reasons to Remortgage
You want a better rate: if you are tied into an initial deal you might have to pay an early repayment charge. This can be a huge 2-5% of your outstanding loan. Plus, there is usually a small exit fee when you repay any mortgage.
However, it might be worth considering as the savings can be huge. Especially if you have a large mortgage. You just need to do your sums.
Change of Personal Circumstances: you may decide that your current mortgage is no longer the most appropriate. A different type of mortgage with different terms or features might suit you better.
You may decide that the predictability of a fixed-rate remortgage is more important to you than the low repayments of a tracker mortgage. Or you may be earning more than when you took your mortgage out and want the ability to overpay with no penalty.
Flexible features usually come with a slightly higher interest rate. Shop around and don’t be tempted by the all singing all dancing products unless you will actually benefit from them.
Raising Extra Money: remortgaging can be a convenient way of raising some extra money by increasing the percentage of your home’s value that you borrow against. Affordability will be reassessed by your lender to make sure you’re not over-stretching your finances.
Common uses for the money raised through remortgaging include:
- Home improvements that increase the value of your home. For example, extending/double glazing
- Releasing capital – be mindful that while your borrowing will go up, your home’s value may not
Large rise in house value: the value of your home may have risen a lot since you took out your mortgage. Therefore, you may find you’re in a lower loan-to-value band, and eligible for much lower rates. Do your sums but it’s definitely worth a look.
Small Mortgage Debt
If your loan falls below £50,000 it may not be worth switching lender. You are less likely to make a saving after fees are taken into account. Some lenders decline mortgages below £25,000.
Take a look at rates with small fees, or no fee at all. The smaller your mortgage, the worse the effect of any fees you need to pay. You’ll more than likely be better remaining on the higher interest rate
Early Repayment Charges
A large early repayment charge could mean it is a bad idea to move before the incentive period is up. It’s worth asking your current lender to let you switch to another of its own deals (product transfer). The early repayment charge may be reduced. However you’re unlikely to get to move to its best deal but if it’s better than the one you’re you have nothing to lose.
Change of Circumstances
Maybe you have stopped working, become self-employed or divorced. Stricter mortgage rules were introduced in April 2014 meaning lenders MUST see evidence of your income. You may not be offered a loan because you no longer fit their criteria, meaning you may have to stay where you are.
House Value Dropped
You may have had a 10% deposit when you bought your home. If your house price has dropped you owe a bigger proportion. Unfortunately, you’re a victim of evaporating equity. In some cases, you may be in negative equity; where your debt is higher than the value of the property. The only thing you can do is sit tight, make overpayments when you can.
Lenders have become much more scrutinous about who they lend to. The Financial Conduct Authority requires them to carefully check the mortgage is affordable. Affordable at current rates and a higher rate too, to ensure you could cope if interest rates were to rise.
Very Little Equity
If you need to borrow more than 90% you’ll often find it difficult to find a better rate. Don’t forget to check if your current lender charges an early repayment charge to leave. Lenders will ask for a lot of detail about your outgoings and repayment histories. They will expect a good record of handling debts well.
Missed payments to your credit card, loan, mortgage, utility company or mobile phone can affect your chances.
Already on a Good Rate: you may be already on such a good deal that moving would be a bad idea. It won’t always be the best deal for you so eventually you’ll need to consider remortgaging.
Time to Remortgage – What Should I Know?
Will I be Paying an Early Repayment Charge?
Most mortgages have an early repayment charge during the initial special discount period. Early repayment charges are usually a percentage of the amount you owe.
- Some charge a flat rate like 4%.
- Others charge a higher percentage the longer you have left on your mortgage.
For example, a five year fixed mortgage could charge:
- 5% if you pay it off in the first year (£2,500 on a £50,000 balance)
- 4% in the second year (£2,000 on a £50,000 balance)
- 3% in the third year (£1,500 on a £50,000 balance)
- 2% in the fourth year (£1,000 on a £50,000 balance)
- 1% in the final year (£500 on a £50,000 balance)
Check the costs on your mortgage statement, in your terms and conditions or by asking your lender for a redemption statement. This will confirm how much you owe and what fees you need to pay to clear the balance.
Find this out and you’ll be able to work out if it’s worth leaving your deal early and paying the charge.
Do I Need a Solicitor When Remortgaging?
- There are no legal charges in getting an advance transaction. The only charges are incurred by increasing the loan and repayments.
- If you remortgage with your current lender it’s called a “product transfer”. You move to a new rate or deal and requires no additional legal work.
Otherwise, a remortgage will require you to have a solicitor or conveyancer. Most lenders will include a free legal package in their remortgage quote. This means a chosen solicitor will cover the legal requirements.
Do check that this is free. If it’s not, ask if you’re able to shop around.
There are a couple of situations where you will need to appoint your own solicitor.
- Adding someone to the mortgage: you will need a solicitor as ownership of the property is changing. This is known as a ‘transfer of equity’. Deeds will have to be amended and paperwork drawn up specifying how you will own the property.
- Removing someone from the mortgage – as above, this means that the ownership of the property is changing so a solicitor will be needed to amend the deeds.
How Much Will They Lend Me?
Lenders used to multiply your income to work out how much you could borrow. Now it’s all about affordability. Lenders look at a detailed assessment of your income compared to your outgoings. They work out how much spare cash you have each month. They take everything into account! Some lenders are so stringent that even paid debts just before applying factor into how much you can borrow.
They will even need you to have a cushion in case mortgage rates rise, and leave you unable to pay. They’ll work out what you can afford based on a higher mortgage rate. It’s usually 6% or 7%, even if you’re applying for a 3% deal.
Whilst We’re Talking Credit Scores
If your credit score isn’t the best… rebuild it. It takes time but one way to do that is to get a credit card. Spend on it each month just a tiny amount will do. This proves to lenders you can borrow responsibly. Only do this if you ALWAYS repay IN FULL each month.
Time it right: County Court Judgments for unpaid bills are wiped from your record after six years. So wait for that until you apply. Applications only stay on your file for a year, so if you have a few, wait.
Don’t miss payments: Set up a direct debit to make at least the minimum repayments on credit cards. It’s better to repay more, so overpay when you can.
Withdrawing cash on a credit card: This is very much frowned upon. Tt’s incredibly expensive and a very bad sign. It looks like you can’t live within your budget.
Remortgaging If You’re Self-Employed
You will need at least two years of accounts to prove your income.
This can be done in one of two ways.
- Business accounts. Preferably three years worth of accounts — though two can sometimes do. They usually need to be signed off by an accountant.
- Tax returns. If you can’t show business accounts, two or three years’ tax returns are the next best option. You’ll be assessed on profits, not turnover. Using a mortgage broker can help the process as they’ll know who require what.
Those who have recently become self-employed will simply not be able to remortgage.
Whatever your circumstances, it is always a good idea to keep up with all the latest mortgage information, especially if you will be applying for a mortgage in the near future.
Conveyancing Supermarket are here to help you get the best remortgage comparison.