When people think about obtaining a mortgage they usually think about buying a new home. However, most people only buy a few properties in their lifetime and so the opportunity to remortgage will occur far more frequently than obtaining a mortgage to buy a new home. I do speak to many people who have never remortgaged before because they don’t understand what is involved or think it will be too difficult so I have put the below information together which I hope you find useful.
What does remortgage mean?
Remortgaging is the process of taking out new finance on a property you already own. Most commonly this will be on a property that already has a mortgage secured on it but can also be raising finance on a property that is owned outright.
Why would someone consider remortgaging a house?
There are several reasons why someone would remortgage their property. The number 1 reason to remortgage is to save money. Most mortgage deals have an initial benefit period, once this initial benefit period ends the default outcome is the mortgage will transfer onto the lender’s standard variable rate (SVR). These are typically much higher than the fixed/tracker rates the lender is offering. For example as of 15th May 2023 Halifax’s SVR is 7.99% whereas their lowest fixed rate available was 4.28%. Anyone who is already on their lender’s SVR or where their fixed rate is ending in the next 6 months should be looking into remortgaging.
Remortgaging also allows you to make alterations to your mortgage finance, for example you could increase or decrease the number of years you have your mortgage over which will increase or decrease your monthly mortgage payments. Mortgage interest rates have risen over the past 12-18 months along with many other essential costs such as energy bills, food etc. and some people may choose to take the option to increase their mortgage term to reduce their monthly mortgage payments, Please note extending your mortgage term will reduce your monthly payments but will result in paying back more interest overall.
When remortgaging there may also be the option to raise additional finance against your property. For example if you own a property with a value of £250,000 and have a current mortgage of £150,000, you could apply for a new mortgage of £200,000. £150,000 will be used to repay your existing mortgage lender and there is a surplus of £50,000 which could be used for other purposes such as funding an extension on your property. Or it could be you are paying out a lot of money each month on items such as personal loans credit cards and using mortgage funds to repay this unsecured credit (debt consolidation) can result in a significant reduction in your monthly outgoings.
A remortgage may also be required if the owners of the property are changing, for example in the event of a separation and one party is buying out the other.
What happens when you remortgage your house?
The process of remortgaging your property is in some ways similar to obtaining a mortgage for a house purchase in that you are applying for finance secured on your property although it is fortunately much less stressful! Some mortgage lenders issue mortgage offers that are valid for 6 months from the date of issue, the fantastic thing about this timeframe is that it removes any time pressure from the process.
If your current mortgage deal ends on the 30th of November 2023, then we are already within 6 months of that date and you can apply for a remortgage and secure the interest rate NOW! You are then protected against any possible interest rate rises over the next few months having secured the interest rate.
Even once the mortgage offer has been issued, whilst waiting to complete on your new product we will continue to review the mortgage market and should it be appropriate review the situation before you complete if there are significant changes to interest rates.
Once your mortgage offer is issued it is typically valid for 6 months so will still be valid for early December, provided you have applied to a lender whose offers are valid for 6 months, when you are able to remortgage penalty free.
The steps involved in remortgaging your property are:
- Researching and comparing mortgage deals to find the most appropriate mortgage deal for you, essentially the cheapest mortgage deal from a lender who wishes to lend to you
- Submitting a mortgage application to the lender and providing all of the relevant supporting documents for the lender to assess
- As part of the remortgage assessment the lender will arrange to carry out a valuation of your property to make sure it is suitable security for the loan. Do not be put off by this though as the majority of lenders will cover the cost of this valuation.
- Similarly there is legal work involved in remortgaging your property but again lenders typically aim to cover the cost of the standard legal work involved in remortgaging. The good news is that it is the legal professional who will liaise with your existing lender and arrange for your current mortgage to be repaid so this is not something you need to do personally.
What to consider before remortgaging?
The first point to consider when remortgaging is the end date of the initial benefit period on your current mortgage deal, or it may have already ended.
As mentioned earlier there are mortgage lenders with mortgage offers valid for a period of 6 months so if you are 6 months or less away from the end of your current mortgage deal it is an ideal time to secure a mortgage deal for when your current product ends.
If you are further away than 6 months it is still possible to remortgage should it be advantageous or necessary to do so, however, the majority of mortgage deals do include an early repayment charge (ERC) for remortgaging before the end of your initial benefit period, typically this ERC is a percentage of your outstanding mortgage balance. If one is applicable this cost will need to be factored into any decision before deciding to remortgage.
Aside from this the considerations to make are around your objectives for remortgaging
Is it purely for the aim of saving money on your existing mortgage balance?
Are you looking to raise additional funds? For example to consolidate debt.
The criteria of different lenders will need to be considered. Some will apply a cap as to how much they will allow to be consolidated, while others are stricter as to the percentage of the property they are willing to lend on.
Earlier I used an example of increasing a mortgage to £200,000 on a property value of £250,000 which is 80% of the property value, if the purpose of the additional funds is for debt consolidation there are some lenders who would be unwilling to lend up to 80% of the property value for this purpose.
Where to get advice before remortgaging a property?
A whole of market mortgage broker will be able to assess your options and advise on whether it is more appropriate to remortgage to a new lender or to arrange a new deal with your current mortgage lender.
By working with a whole of market broker you will have the peace of mind of knowing they have been able to secure the cheapest mortgage deal relevant to your circumstances. At Mortgage 1st there is no fee payable upfront, which is not the case for every broker, and therefore we can look into your options and provide a full breakdown of your options and the costs involved to put you in an informed position to decide if remortgaging is right for you.
Considerations when remortgaging in 2023
Unfortunately none of us has a crystal ball and can say exactly what is in store for the property market in terms of property values, interest rates. We all have certain expectations around what may happen moving forwards based on factors such as when economists expect to happen with inflation but these predictions are always subject to unforeseen events.
For example 18 months ago Russia had not yet invaded Ukraine and 3 and a half years ago would have been before anyone had heard the term Covid.
The key thing again though is to get the right advice because a good mortgage adviser will be able to keep you informed on any developments as well as make the recommendation most appropriate for your individual circumstances.
Contact us today if you have any further questions about how we can help, or get a FREE REMORTGAGE QUOTE today using our online form.
My name is Carl Robbins and I’ve been a Mortgage & Protection Adviser since 2013. To find out more visit my social media pages by clicking on the links below.