Remortgage
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Remortgage
What is a remortgage and how does it differ from a regular mortgage?
A remortgage is quite simply moving your mortgage from your existing lender to a new lender, without actually moving home. You stay put in your home and all we’re doing is moving the mortgage to a new lender.
How does the process of remortgaging work in the UK?
It makes sense to start by reviewing if it’s actually a good idea to remortgage, by having a chat with a broker or doing some calculations yourselves.
We’ll explore the options to help you settle on a lender. We’ll put an application in, and once the mortgage is agreed the lender will look at proof of your earnings, check your credit history and do a valuation on the property.
Once they are happy they will produce a formal, committed mortgage offer for you. You will then appoint solicitors to move the mortgage to the new lender. You can use a firm that the lender instructs, where they cover most of those solicitors’ costs for the remortgage. In this case you’re not necessarily dealing with a fee earning partner, generally it’s someone junior with a checklist in front of them.
If you want it done urgently or to perhaps change who’s on the mortgage and the deeds to the property at the same time, you may prefer to instruct your own firm of solicitors. In that situation, the lender may give you cash back towards those costs.
By instructing your own solicitor you have a lot more control over the situation, but it’ll cost you more. Either way, they will deal with closing the old mortgage down and starting a new mortgage off.
How long does it take to get a remortgage?
Getting lender agreement is the quickest part of the process, and takes a few days or up to ten days. If you’re using the free legal firm that the lender has appointed, it can take six to eight weeks from start to finish for a remortgage to go through.
If you use your own firm of solicitors it can be done quicker – perhaps one to two weeks. It really depends on how urgent the whole process needs to be.
In the normal scheme of things, for a remortgage in plenty of time before an existing rate expires, then six to eight weeks is a good timescale.
What are the main reasons why people choose to remortgage?
The key one is to get a better rate than that available from your existing lender. When you come to the end of your initial rate, some lenders try hard to keep you as a client, while other lenders won’t try so hard. It can also vary throughout the year depending on how they’re doing on their targets.
Another reason to remortgage is perhaps to raise some money. Maybe your existing lender isn’t happy with your income and won’t lend you any more at this stage – but another lender might well be prepared to do so.
Another reason might be around changing your mortgage type. Let’s say you have a repayment mortgage with only a short time left outstanding and your monthly payments are relatively high.
You might have a payment shock from interest rates having gone up since you last arranged your mortgage. You might want to extend the term on the mortgage to help reduce the monthly payments, or swap part of the mortgage onto an interest-only basis if appropriate.
Perhaps your existing lender isn’t being as helpful or as flexible as you’d like. The key thing is to take advice and review all the various options.
What happens to the existing mortgage when someone decides to remortgage?
It is paid off as part of the process. The new mortgage is drawn down and the solicitor dealing with the remortgage process will use the funds to pay off the existing mortgage when the new mortgage starts. If you’ve raised some money, they’ll send that additional amount through to yourselves.
What happens if I don’t remortgage after my deal expires?
If you haven’t done anything, you’ll automatically default onto the lender’s standard variable rate. These need to be avoided if at all possible.
In the current market [podcast recorded in January 2024], we’ve got a base rate of 5.25% and the variable rate could be anything from 7.5% to 9.5% – so you don’t want to end up on that rate.
If you don’t remortgage, you still have the option of taking a new rate with your existing lender. They can be quite attractive. So take advice, see whether it makes sense to take a new rate with a new lender or with your existing one.
Talk to somebody. Even if you’re just talking to your existing lender – although we’re nervous about suggesting people do that. Knowledge levels with some lenders has dropped over the years and we do see some poor advice being given. But taking advice is better than defaulting onto a standard variable rate, for sure.
What factors should I consider when deciding whether to remortgage?
The key thing will be to look at costs, potential timescales and the amount of hassle compared to taking a new rate with your existing lender.
Does it make financial sense to move?
We’ve shown clients that by moving to a new lender they could save £2,500 over the next couple of years.
But other clients are happy to take a new rate with their existing lender rather than go through the hassle of remortgaging. We can give you the various implications, costs, timescales and what’s involved.
Can I remortgage to consolidate debts?
It is an option with most lenders within certain criteria. A few lenders cap the level of debt that they allow you to consolidate at £25,000. Other lenders set different limits.
Something we often see is that people have used credit cards to undertake property improvements and have £50,000 or £60000 of debt. But because it’s for your property, a broker can evidence this and get lenders to consider a remortgage – even with lenders who set a lower limit than that.
Can I remortgage if I have bad credit?
Yes, although it does depend on how bad it is. Somebody who has been made bankrupt recently has a low chance of getting a remortgage, but a missed payment or a debt to a mobile phone contract should not be a problem.
Certainly lenders will have a look at bad credit situations. It will vary from lender to lender, and not many high street lenders are prepared to get involved with bad credit situations.
A broker will know which lenders are more flexible and could help with your particular circumstances.
Will I have to pay any fees or penalties when remortgaging?
It depends on the individual circumstances. If you are part way through a fixed rate deal and have to remortgage for whatever reason, there may be a penalty.
Let’s say the existing lender won’t lend more money, and a second mortgage is not a potential option, you will have to remortgage. There will be a redemption penalty to the existing lender because they’re ending the mortgage early.
A good broker will do the calculations and make you fully aware of what’s involved. Then you can make a decision based on all available options.
If we’re looking at a remortgage two or three months before your existing rate expires, we can gear the remortgage up to happen on the day the tie-in expires – then you wouldn’t have to pay any penalties.
There will be fees to pay. We charge a fee of £400 for a remortgage. You may have to pay a valuation fee or legal fees, depending on the product and lender. Most lenders will pick up the costs of a basic valuation on a property and legal costs.
If the remortgage involves a transfer of equity or removing someone from the mortgage or the deeds, those costs are not generally covered. It tends to be around £250 to £350 for that sort of transaction.
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What are the current interest rates for remortgaging?
The rates are literally changing day by day. At the moment, in January 2024, the cost of fixed rates are dropping. Lenders are re-pricing their fixed rates downwards at the moment and squeezing their margins.
The profit they make on each mortgage is dropping as well, to reduce pricing. It’s a constantly moving feast and the actual rates available will depend on different things like the loan to value.
Lenders price mortgages according to their perceived risk, and that will be less if you’ve got more equity in the property. They’ll offer you better rates of interest if you’re only borrowing 60% of the value of the property.
While rates are lower than they were six months ago, it really does depend on each individual’s personal circumstances. If you have a blip of poor credit on your file, for example, rates available to you will be slightly higher.
How much could someone potentially save by remortgaging?
It really does depend on the client’s mortgage size, which lender they are with and what sort of rates they’re on. There is potential to save tens of thousands of pounds over two, three or five years.
A broker will give you the detailed costings – you might have a pleasant surprise coming your way, particularly with the way rates are reducing.
On particularly large mortgages we have saved clients over £50,000 over a five-year fixed rate. At the other end are potential savings of hundreds of pounds. We can give you a very good indication of how much you could potentially save.
What documentation will they need to provide when remortgaging?
Lenders want to prove your earnings. We will confirm exactly what lenders need, but it’s generally the last three months’ payslips and the last couple of sets of accounts if you’re self-employed. They also like to see your last two or three months bank statements to see how the account is running and your salary going in each month.
We need identification as well, to comply with money laundering regulations – your passport, driving licence and a recent utility bill. The information isn’t too onerous on a remortgage.
Can we switch lenders when remortgaging?
The whole process of a remortgage is moving from one lender to another. Let’s say we are moving your mortgage from Nationwide to HSBC. At the outset it might look like HSBC has a great deal for you.
The process takes six to eight weeks – but if in four weeks’ time it makes more sense to jump onto a new rate with Natwest, we can do that. We would ditch HSBC and move to Natwest and save you more money. Your broker will be constantly looking and reviewing these things as you go through the process.
Will I need a new valuation or survey when remortgaging?
The lender wants to make sure that your property exists and that it’s worth roughly what you say it is. Most lenders offer free valuation these days and they don’t necessarily send a valuer out to look at your property. They have very good data and can do these things automatically.
That system is geared up for a typical house or flat in a city, where there are plenty of examples so they know what the values are. If you’ve got a very unusual property in the middle of nowhere there will be fewer comparable sales – so they may send a valuer out to have a look at the property.
Can I remortgage if I’m self-employed or a contractor?
Yes – it’s not an issue in the slightest. You just need to be able to prove your earnings by providing your accounts. If you’re a contractor, invariably lenders will want a brief on how long you’ve been contracting, your current contract and the chances of it being renewed.
It’s a check that you’ve been contracting for a while for the same sort of company in the same industry. Self-employed and contractors don’t need to worry about getting a remortgage. Talk to a broker and we’ll give you the information you need to prove their earnings for the lender.
What happens if the property value has decreased since initially obtaining the mortgage?
The mortgage will probably have reduced in value as well. Let’s say you bought the property five years ago – the balance on that mortgage (if it’s a repayment mortgage) will also have come down.
The key thing is to give your broker a realistic expectation of the property value. If the property value has dropped it’s not necessarily an issue. It depends on how much you’re looking to borrow against the value of the property.
If you bought with a 60% mortgage three years ago, the value of the property has come down a little bit but your mortgage has also come down. You might have redecorated, brought the garden up to date – in which case we can appeal the lender’s valuation. We can ask for a second opinion.
Ultimately, borrowing 75% of the value of the property rather than 68% is not going to be the end of the world for you. There will still be some very good rates and terms available.
How often can I remortgage my property?
As often as you wish, really. Most clients look at whether it makes sense to remortgage when their existing rate expires.
Let’s say they’ve taken a five-year deal – most clients will review their options at the end of those five years. Does it make sense to remortgage to a new lender? Or to stay with your existing lender and just take a new rate from them?
There’s no time limit or restriction on the number of times you can remortgage. I moved my mortgage or probably seven or eight times over a spell of 15 years. It can be done and it is commonly done.
One good thing now is that lenders are generally trying a lot harder to keep clients and so offering as good as if not better than their new business rates to their existing clients.
Talk to a broker and see whether it does make sense to remortgage and achieve your goals.
Getting a broker to hold your hand through the process makes it so much easier. We deal with this sort of thing day in, day out and it’s a lot less daunting if you’ve got somebody that’s been there, done it and bought the t-shirt.
What are the advantages and disadvantages of a fixed rate versus a variable rate remortgage?
With a fixed rate, you’re buying the certainty of knowing what your payments will be for a particular period of time, be that two, three, five, seven, 10 or even 25 years.
With a variable rate you are gambling on what happens to interest rates. We’ve got a base variable rate at the moment of 5.25% and rates might start to drop in the next 12 months – not dramatically, perhaps we might see a 0.25% off initially and perhaps two or three more 0.25% percent drops over the next few years. The forecasts are not for anything dramatic to happen – although we can never be certain.
With a fixed rate you know what your payments will be. With the variable rate, you’re gambling on where rates might go. The potential advantage of a variable rate compared to a fixed rate is that lenders often don’t charge redemption penalties. With a fixed rate you are tied to that lender for the period of the fix itself.
If you take a 10 year fix and you decide to pay that mortgage off in five years time, you will have huge redemption penalties to do so.
But variable rates tend not to have redemption penalties, so they give you more flexibility. You can perhaps jump on to a fixed rate at a later time or pay a big lump sum off your mortgage. Occasionally products buck this trend – a lender might offer a fixed rate without redemption penalties, but invariably it’s at a higher price.
The key thing when you’re looking at fixed versus variable is your future plans. If you’re going to move in two or three years’ time, don’t jump onto a five year fix because you’ll be tied to the lender for that time.
Can I remortgage if I’m nearing retirement age?
You can. It does depend on what your retirement age is. Some lenders will assume that you’re going to retire at state pension age, while others assume you’re going to retire by the age of 70 or even 75.
There are lenders that won’t lend to you beyond the age of 70 , but others will look at longer terms for people nearing retirement age. Quite often they will base affordability on whether you can afford the mortgage on your projected pension income.
You need to take advice specifically about affordability of the mortgage. A decent broker will be able to come up with various options for you.
PLEASE NOTE: 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.
