Guide to remortgaging
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Approximately 6.5 million UK residential property owners are paying for their homes using a mortgage (ONS 2021). Around 1.4 million of those are not on a lender’s introductory fixed rate.
Of those 1.4 million, around 50% are on a discounted or tracker mortgage directly linked to the BoE’s base rate. The other 50% are trundling along on their lender’s SVR (Guardian, Aug 2023). That’s hundreds of thousands of homeowners at the mercy of their mortgage lenders’ pricing policy.
Most homeowners not currently enjoying a lender’s introductory or discounted terms could remortgage in an instant. This comprehensive guide outlines how to remortgage, and the pros and cons of doing so.
What is a remortgage?
Remortgaging is the process of switching your mortgage to a new lender. This can be a good way to save money by getting a lower interest rate*. Or you can use a remortgage to change the terms of your existing mortgage, such as the length of the term or the type of mortgage.
*During the current difficulties of the Cost of Living crisis, mortgage interest rates have spiralled upwards. Please discuss the options available to you with your broker before committing to a new mortgage.
When should you remortgage?
There are several optimal times you should consider to remortgage:
When your current mortgage deal is coming to an end
Most introductory mortgage deals last for two, three, or five years. If you took out your mortgage through a reputable broker, they will let you know several months in advance of your introductory term ending.
This is important because, once your current deal ends, you will automatically move onto your lender’s standard variable rate. A lender’s ‘SVR’ is most often higher than the rates available on new mortgage deals.
If you have a good credit score and your property value has increased
If your property’s value has increased, you may be able to remortgage to a lower loan-to-value (LTV) ratio. This means you carry the equity you’ve accrued, giving you access to better mortgage rates.
The more equity you have, the lower the ‘risk’ for your mortgage lender, hence preferred terms on your remortgage.
Changing the terms of your mortgage
If your monthly budget has become stretched, you may want to switch to a longer mortgage term. A longer mortgage term will help you to reduce your monthly repayments. But that may mean you end up paying more back in the long run.
You may want to switch to a tracker, offset, interest only or fixed-rate mortgage to protect yourself from rising interest rates. A broker will advise which option is best for you based on your unique situation.
How to remortgage
To remortgage, you will need to follow these steps:
- Choose a reputable mortgage broker. They’ll help you find the best deal for your needs, and can also help you with the application process.
- Once you’ve found the deal you’re happy with, you’ll need to apply for that mortgage. At this stage, you’ll need to complete an application form and provide the lender with the financial information they need to assess your application.
- Once your mortgage application has been approved, you will need to appoint a solicitor. They will handle the legal side of the remortgage.
- If your new mortgage is with the same lender, this is technically a ‘Product Transfer’, and there’s no need to involve a solicitor. For a remortgage to a new lender, you will need a solicitor.
- Once all of the paperwork and any surveys have been completed, your new mortgage will be completed and your old mortgage will be paid off.
Things to consider when remortgaging
If you’re remortgaging before your current mortgage deal ends, you may have to pay an early repayment charge. The amount you’ll need to pay to release yourself from your current mortgage will depend on:
- How much it was for
- How long you’ve had it, and
- The exit rate agreed at the time
These can amount to a significant sum, so you must factor repayment charges into your affordability calculations when deciding whether to remortgage.
You also need to factor in the fees associated with remortgaging, which could include:
- Valuation fees
- Legal fees
- Product fees
- Mortgage arrangement fees
Besides these specific fees, you also need to consider your overall financial situation. First, make sure that you can afford the monthly repayments on your new mortgage. Then consider your future financial plans, such as whether you plan to start a family, purchase a car, gift money to relations or even retire early.
Getting help with remortgaging
Are you unsure about whether remortgaging is right for you? Do you need help with the application process? You’re not the only one with these—and other—questions.
You can get expert advice, often for free, from a mortgage broker. They can provide you with impartial advice and help you find the best (not necessarily cheapest!) mortgage deal for your needs.
Additional tips for remortgaging in the UK
- Plan your remortgage early, to give you more time to compare deals and to get your paperwork in order.
- Getting your credit report checked before you apply will help you identify any errors on your report and give you the best chance of mortgage approval.
- Read and understand the small print and Ts & Cs before you sign any mortgage documents
Remortgaging can save money on your next mortgage if you make a plan and stick to it. However, it’s critical you undertake some of your own research and get professional advice before you remortgage.