Remortgage guide

There might be many reasons why you want to stay in your current home but are still looking for a better deal from your mortgage.

Read on for a complete guide to changing your mortgage while keeping your home.

The basics about remortgaging

What is a remortgage?

Remortgaging simply means that you are changing the company that provides you with a loan on your home. Many people change mortgage companies when they move house, but it’s also quite common to change your mortgage provider even if you stay at the same property.

How does a remortgage work?

Rather than moving home, you move the loan on your home, replacing the financial agreement with your current lender for a new lender, so your mortgage payments will be made to a different company, usual because it offers a lower interest rate, more flexibility or will allow you to borrow extra funds.

How long does it take to remortgage?

You should expect a remortgage to take anywhere from nine to twelve weeks from initial enquiry through to completion, so ideally you should start to look no later four months before a fixed deal is coming to an end, and it makes sense to start even sooner as some deals can be locked in six months ahead.

How soon can you remortgage?

In general, most lenders won’t consider you for a remortgage until at least six months after you have become the legal owner of a property (whether you have bought it with a mortgage or acquired it in some other way), with some requiring a year’s wait.

In any event, if you are in the early stages of a mortgage that has a fixed rate or discounted period, there are a multitude of fees and charges that can make it very expensive to move during this time, so in general, unless you are terribly unhappy with the deal you are on, it is worth waiting until any initial term is over as you then won’t have to pay excessive Early Repayment charges.

In some circumstances, for example if you buy a property at auction, inherit it, or buy using cash but then require a mortgage to fund renovations, brokers like us can help you find a specialist product called a Day 1 Remortgage that bypasses this requirement providing you can prove legal ownership of the property.

Remortgage valuation

Why remortgage?

There are a number of reasons why you might want to change your mortgage provider:

End of fix

When you reach the end of a fixed rate or discounted mortgage deal, then the lender will normally put you automatically on to the firm’s Standard Variable Rate, which is almost always an expensive option. Rather than wait until this happens, it’s much better to think ahead - it’s possible to lock in place a good remortgage deal up to six months before your fix ends, so you can start shopping around for the best remortgage rates a long way in advance. It’s always worth contacting your current lender when you’ve found an appealing deal, as it may be willing to match it, saving you the hassle and paperwork of moving.

Cutting costs

Regardless of what type of mortgage deal you are on, you may decide every so often to shop around and see if there is a better deal out there. Depending on the type of mortgage you have, and how long you have had it, you may have to balance any savings against the cost of paying Exit Fees and/or Early Repayment penalties to escape your existing deal.

Changed circumstances

There are a variety of reasons why a change in mortgage might be appropriate. A new, better-paying job might mean you can afford to pay more each month, so you might want to get a mortgage with a shorter term, or one with more flexibility for overpayment. If your personal circumstances have changed – perhaps a marriage break-up or a new partner – then you might want to move your mortgage to find a more appropriate product, or you might have saved up enough to remortgage with a much lower LTV and so a lower interest rate.

Borrow more

Perhaps you would like to extend your home, or even go on a dream holiday? If you have been paying your mortgage for some time, you may want to look at whether you could take out a remortgage to release equity and borrow a slightly larger amount, known as “additional borrowing” or a “further advance”, giving you cash to help with your plans. This should always be undertaken cautiously, as any debt that is secured to your home can mean your home being repossessed if you don’t pay it back as planned. In addition, while the interest rate will undoubtedly be lower than borrowing money via a personal loan or overdraft, you will be paying it back over a much longer term, so it could actually be more expensive in the end.

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When not to remortgage?

There are some instances where remortgaging might not be worthwhile or even possible, but you would be best to talk it over with an Embrace Financial Services adviser to give advice on your particular circumstances. Examples include:

When you have limited equity in your home

Either because you took out a large LTV mortgage initially and have paid very little off, or because your home has dropped in value since your original mortgage. If you are in negative equity it’s normally impossible to remortgage to a new company, although you might be able to negotiate a different deal with your existing lender.

When you have a limited amount left to pay

At the other end of the spectrum, home-owners with less than £50,000 outstanding might find it difficult to find a deal that works for them, as the charges will outweigh the benefits. Few lenders will even accept a remortgage of less than £25,000.

When you circumstances have changed

Whether it’s the trauma of a job loss, or a happy arrival that means someone is taking parental leave, if you have less money coming in than you did when you took out your original mortgage it might not be possible to move as you are likely to have problems with the affordability checks.

When you can get a great “product transfer”

Remortgaging to a different lender involves paperwork, legal fees and a degree of hassle, so it’s always worth approaching your existing lender. Just as mobile phone or TV companies will often have special deals that they only offer to people who are threatening to leave, you may find your existing lender will offer you a “product transfer” that will put you on a better deal with none of the aggravation of a remortgage.

What affects the cost of remortgage?

Mortgage companies which offer cheap loans want low risk borrowers, while those offering to lend in less than perfect circumstances will expect a greater interest rate to cover that risk. Therefore, the things that will affect the kind of remortgage deal you can access include:

The amount of equity you have in the property

If you have already paid off a good percentage of your existing mortgage, and particularly if your home has also increased in value, you may find you need a lower loan-to-value than you did on your current loan. Rates start to get significantly lower when the LTV is less than 80%, and cheaper still at 60%, as there is far less likelihood of the lender being out of pocket if the home had to be repossessed and sold.

Your incomings and outgoings

Annoying as it seems, a remortgage – even if it’s for the same amount of money on the same property – will require a complete financial assessment. Mortgage companies will ask the same questions, and require the same level of proof of income, as if you were taking out your first mortgage – even if you have never had a problem with your mortgage payments. If you took out your last mortgage before 2014 when stricter financial assessments came in, you might even find that a lender says you can’t afford a remortgage that is cheaper than you are already paying!

Your credit history

Companies will also want to see that you have a good history of repaying what you borrow and make sure that you haven’t run up debts or CCJs, so they will run a check on your credit history. Although you will inevitably pay a little more, remortgages for bad credit are available, especially if you use a mortgage broker to search for sympathetic lenders.

When might I have difficulty remortgaging?

If you have taken out a mortgage in the past five or six years and nothing major has changed, then you are unlikely to have significant problems. Different lenders may have different views on more unusual properties, so you may find you have a smaller panel of lenders to choose from if you want to remortgage a thatched cottage, ex-authority home, high-rise or eco-homes.

However, remortgaging is likely to be difficult or impossible if

• Your home has dropped in value so you are in negative equity (or have more than 95% LTV)
• You are what is known as a “mortgage prisoner” who took out a mortgage before strict affordability rules were introduced and the mortgage you currently have is deemed “unaffordable” (even if you have been paying it without problems for years). No lender is allowed to loan to you in these circumstances, even when, bizarrely, a remortgage might drastically reduce your monthly bills. It is hoped that legal action currently in progress may eventually help people in this situation, many of whom had mortgages from Northern Rock and Bradford & Bingley
• A serious change of circumstances has occurred since you took out your last mortgage, such as a criminal conviction, debt problem, job loss etc. Speak to an adviser for a professional opinion as we may still be able to help you in some of these circumstances

What other costs are involved in remortgaging?

Exit fee/closure fee/deeds release fee

This is a fee for closing your existing mortgage and transferring the deeds, and is usually payable whether you are remortgaging or have finished paying your mortgage completely. The amount that will be charged should appear on your original mortgage documentation

Legal/administrative fees

Your lender has a legal charge over your home that needs to be transferred to the new lender, and this can involve a variety of fees, often amounting to several hundred pounds. 

Early repayment charge

this is often a percentage of the outstanding amount of the mortgage, and is a fee that is usually payable if you leave during a fixed term or discounted period (so you may find that it is worth waiting until this initial period is over). It is worth contacting your lender to find out exactly how much these fees are, and at which point they finish, as in some cases they can continue even after the initial discount or fixed rate period has ended.

Valuation fee

Lenders will normally insist on revaluing your home as part of the process, although the majority will offer a free valuation, and often free legal fees as well.

Arrangement fee

This is a fee payable to the lender for organising your mortgage, and can be as high as £2,000. You may also have to pay further fees, perhaps called administration, booking or reservation fees to your new lender. These fees can make a huge difference to whether it’s worth remortgaging, so either get your broker to do the sums or use an online remortgage calculator to see whether fees turn a good deal into a poor one.

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How to find a remortgage deal

Our advisers will do all the hard work for you, working out the very best deal for your individual circumstances and giving you a personal level of service, including access to broker-only deals. We have fully trained consultants across the country who can access thousands of mortgages from a wide panel of lenders, including exclusive deals.

What documents do I need?

If though you have had a mortgage before, unless you are simply changing to a different product with the same lender, a remortgage will require much the same information and proofs of status as a first mortgage, so are you likely to need to be able to provide:

• Proof of identity such as passport, driving licence, utility bill
• Proof of income such as three months’ payslips, proof of any regular bonuses and a P60 or, if you are self-employed, three year’ accounts/self-assessment returns
• Proof of outgoings such as three months’ bank statements and credit card bills

Type of loans available for a remortgage

Fixed rate

With a fixed rate mortgage, the interest rate will not change for a set period of time – from a year to up to 10 years. Some lenders even offer lifetime fixed rate mortgages. The advantage of a fixed rate is that you know exactly how much you will have to pay for the period of the fix. Points to consider:

• Short one-year fixes often have great headline rates, but if the mortgage comes with fees, and you have all the hassle and possible expense of remortgaging after 12 months, then they may not offer the best long term value.
• With any fix you normally revert to the lender’s SVR (standard variable rate) at the end of the term, which is usually expensive, so you will need to remortgage at the end of the fix
• The longer the fix, the higher the interest rate tends to be, so the greater the possibility that mortgage rates might drop while you are tied in to a more expensive deal that has early repayment charges

Discounted rate

These mortgages offer a fixed level of discount off the lender’s SVR for either a specific term or the life of the mortgage. The monthly amount you pay will vary if the lender’s SVR changes (usually, but not always in response to changes in the Base Rate).

Tracker mortgage

This is a variable mortgage, so the interest rate can change and you may pay more or less as a result. Unlike SVR, tracker mortgages are linked to the Bank of England Base Rate, so they will only change if the base rate changes, not on the whim of a lender. The rate is fixed at a certain percentage above the Base Rate. These deals are often cheaper than fixed rate deals because the risk to the lender is lower, but you need to be sure you could cope with your mortgage going up.

Offset mortgage

This is a sophisticated kind of flexible mortgage, where your home loan is linked with your savings and/or bank accounts. Instead of paying interest on the whole outstanding amount of your mortgage, the amount you have in savings is taken off when the interest is calculated. You don’t earn interest on your savings, but instead you don’t pay any mortgage interest on that same amount. If you have large amounts of savings, or even if you have high sums in your current account for the first half of the month, you make savings on mortgage interest that you can use to either reduce your monthly mortgage payments or reduce the term of the mortgage. Interest rates are slightly higher than non-offset mortgages, so use an online calculator or speak to us today to be sure it is the right choice for you

How long a term should I go for?

Most people long for the day when they will own their own home and be mortgage-free, so if you are not borrowing any additional money then it makes sense to keep the term the same. So, for example, if you took out a 30-year mortgage with a three-year fixed rate period, when you come to remortgage at the end of those three years, try to take out a 27-year mortgage to keep yourself on track. You might find that you can even take the opportunity to reduce the term and opt for a 25-year mortgage instead.

Should I look for a fee-free mortgage?

Some of the mortgage deals that seem the most appealing come with large set-up fees – even up to £2,000. The impact of these fees on the overall cost of the mortgage is worse if you have a smaller amount outstanding, in which case it can be more economical to take a fee-free option with a slightly higher interest rate. There are online mortgage calculators to help you work it out, or ask us for advice.

Can I get a buy-to-let remortgage?

You can remortgage a buy-to-let property in much the same way as you can change the lender on your residential property. In general, lenders want to see a smaller LTV for buy-to-let remortgages, and they will also want the anticipated rent to cover at least 125-145% of the annual mortgage. In addition they will take into account your personal income and outgoings and the value of the property. This is a complicated area where you will undoubtedly benefit from the expertise of a mortgage broker or independent financial adviser.

Types of mortgages