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Joanne Markham talks us through our remortgaging options.
What is a remortgage and how does it differ from a regular mortgage?
It doesn’t differ, really. If you’re a First Time Buyer you’re getting your first mortgage, where you will choose one of different mortgage types like fixed rate, tracker mortgages or variable rates. At some point they will come to an end, and it’s time to seek another rate.
If you don’t remortgage, you’ll be going onto a much higher rate – the bank’s variable rate. When you remortgage it’s also an opportunity to raise further funds or change things about a bit.
It’s just making sure it still fits your needs. Your first mortgage should be tailored to you in terms of your monthly repayments, your term, the type of mortgage – and when you remortgage, things may have changed. You may have started a family or got married or changed jobs. You might want to borrow more money, you might want to downsize. There’s lots of different variables really. But it’s basically not your first mortgage, it’s the next one and the one after that – and so on.
How does the process of remortgaging work in the UK?
Your existing lender will write to you when you come to the end of your fixed rate or the end of your tracker. You could have a 30 year term, but only the first two years are fixed at a certain rate.
In the current climate, we’re contacting our clients roughly about six months before, to make sure we’ve got plenty of time to look at all the options for you. Your own lender is only going to offer you what they have. There are many lenders on the market and so it’s important to compare what’s available.
The process of remortgaging is exactly the same as when you get your first mortgage. We’re finding you a new mortgage that suits your income, expenditure and what you want to pay.
You could look at raising more money, increase the term, reduce the term – it’s a refresh. You still have to provide all your documents, you are credit scored again.
A lot of people don’t realise that if they have had a little credit blip since they’ve got the mortgage, they can stay with their current lender and get a new deal. There’s no credit check with this. You don’t have to leave it and go onto the big variable rate, so please bear that in mind.
How long does it take to remortgage?
It varies, and it depends what you’re doing. If you’re staying with the same lender, we don’t need to involve solicitors. There’s no change at the Land Registry as your property is already registered for that particular lender.
If you don’t pay your mortgage, your lender has the first option if the house is repossessed. That’s why a mortgage is usually called a first charge. You can get second charges, but a high street lender will always want to be your first charge – they want to get paid back first if anything goes wrong.
If you stay with your current lender it’s what we call a product transfer. I’ll get it offered straight away and then we sit on it until the end of the deal. It automatically switches over with not a lot of paperwork.
If we take you to another lender, we have to go through underwriting with that lender. We have to prove income, expenditure and ID the same as on your first mortgage. I’ve had mortgages offered the same day, or it could be three weeks.
With a remortgage, the solicitors don’t take as long. When you’re buying a property, there’s a lot more conveyancing involved – when you’re remortgaging that’s already been done. It can usually be done in a matter of weeks.
What are the main reasons why people choose to remortgage?
It could be as simple as you coming to the end of your fixed rate and you want another one to give you stability of payments. You know what you’re paying.
It could be that you want to raise some capital from the equity in your property to build an extension. It is the cheapest way to raise money and it’s secured on the property.
You might want to change the terms to pay it off quicker, or as we’re seeing in the current climate, people want to extend the term a little bit to just ease the monthly payments.
There could be a divorce and the client needs to take somebody off the mortgage. That means a transfer of equity.
There are lots of reasons. Some people have saved up some cash and want to pay a chunk of the mortgage off when they remortgage, and reduce the term. It is very bespoke – it’s all tailored to what you want and what comes out in the fact find with you.
What happens to my existing mortgage when I remortgage?
If you’re moving from Leeds Building Society to NatWest Bank, this is where the solicitors come in. They draw your funds down from NatWest, ready for completion day, and then they pay off your old lender on the same day. It’s all done in one day and you start with your new lender.
What happens if I don’t remortgage after my deal expires?
A lot of people are worried about this. They think they won’t have a mortgage anymore and the lender will want all the money back. But it’s not that at all.
As I mentioned before, you might have a 30 year term with a two-year fixed rate – at the end of the two years, if you don’t remortgage you will fall on to the lender’s standard variable rate (SNV). They’re quite high at the moment – they could be 7% or 8% [podcast recorded in September 2023]. It means your mortgage payments will go up. Nothing dramatic will happen, but you’re going to be paying a lot more interest if you don’t do anything.
What factors should I consider when deciding whether to remortgage?
It depends what you want out of the remortgage. If you’re happy and you don’t want to change anything, get your broker to have a look. What they should be doing first and foremost is seeing what your existing lender is offering. Some will offer bespoke percentage rates to keep existing customers.
In terms of factors to consider, is there anything you want to do? This isn’t about paying for a new car or going on holiday – you’d be putting short-term debt onto long-term debts which will cost you a lot more in the long run.
If you’re going to raise money, think about how it will affect you – how much more interest will you pay? How much more is it going to cost? Is it going to be worth doing this? That’s where a broker can come in and point you in the right direction.
Can I remortgage to consolidate my debts?
Yes, you can. The Financial Conduct Authority (FCA) doesn’t really like it very much. We’ve got to be careful because what we are doing is putting a short-term debt onto a long-term debt. So if you’ve got a £5,000 car loan that you’re struggling with, you put that £5,000 on to a 25 or 30 year mortgage term, it’s going to cost you a lot more interest over time.
It’s all about looking after clients and making sure they’re fully aware. We are restricted as to what we can do. Lenders restrict us with loan to value – the percentage that you own in the house.
If you’ve got a £100,000 house and you only owe £50,000 on your mortgage you’ve got 50% equity in that property. Most lenders will go up to 75%, 80% or 85% Loan to Value. At one point they used to go to 90% but this has reduced because they don’t want people living expensive lifestyles and adding it onto the mortgage every two to five years.
People can overspend on credit cards, and struggle to pay them with big interest rates. So they raise capital and put it onto the mortgage. In effect, all you do is pay that money over a much longer term.
You’re also putting that debt onto a secured property. With credit card debt, it’s not going to take your property away if you don;t make payments. But if you don’t pay mortgage repayments, you can lose your property.
Think carefully about debt consolidation. It can make sense in some situations – perhaps you bought a house to do it up and took out a personal loan of £25,000 to put in a new kitchen, bathroom etc. That’s quite different because that house has probably increased in value quite a lot because of that loan. You’ve actually invested that money in the property and it’s given you equity. It’s still classed as debt consolidation but it’s easy to get approval on that from a compliance point of view.
Can I remortgage if I have bad credit?
We do have subprime lenders that understand some people have blips especially in the last few years. People have missed payments, Individual Voluntary Arrangements or Debt Management Schemes and people have been bankrupt in the past.
The main one that lenders don’t like is a missed mortgage payment, because you’re asking to borrow money against a house that you’ve missed a mortgage payment on. They will want to be sure that’s not going to happen again. You will have a much higher rate because you’re higher risk – but there are definitely options out there.
So don’t assume that because you have some bad credit you can’t get a new mortgage. Reach out to a broker who has the expertise. Don’t go direct to your bank because every lender has different criteria which you wouldn;t be aware of or have the time to locate a lender that fitted your circumstances. Many of the high street lenders won’t consider people with bad credit unless it’s very historic. You will also need a higher deposit.
Whereas we have special lenders that will look behind the scenes and ask questions as to why and how you got there. If it all makes sense, they’ll do it. So don’t think there’s not an option for you – always ask the question.
Will I have to pay any fees or penalties when remortgaging?
Possibly. The majority of brokers charge a fee and some lender products have a fee as well. People often ring us up and say they’ve seen a really good rate – but when you look at the small print, there could be a £1,000 fee or £1,500 fee. It’s not just about the rate but the overall cost that matters.
When I’m looking at a mortgage for somebody I look at every scenariol. There might be a rate of 3.99% with a £999 product fee – or 4.59% with no fee. You’ve got to work out the details. If it’s a two-year fixed deal and it’s only a £70,000 mortgage, you’re never going to save that £999 fee in two years through the monthly payments.
Some deals come with free valuations, some don’t. Some come with free solicitors, some come with cashback to pay for the legals… . some you have to pay the solicitors. So as a broker we add up what’s the most cost effective. It could be that the 4.59% deal is the cheapest option when we take everything else into account.
What are the current interest rates for remortgaging?
[podcast recorded in September 2023] They’re quite high based on previous years. They’ve come down a little bit – but I could give you a rate now and it will be out of date tomorrow. Rates come with so many different variables. Mortgages with 5% deposits are the highest rate, whereas if you’ve got a 25% deposit you’re paying a lower rate because you’re less risk.
If you’ve got bad credit, you’re a higher risk. If you’ve got excellent credit, you’ll get the best rates available to you. Even 12 months ago I could have given you a rate and it would have been out of date the next day. Plus, I could have three people in front of me and they would all get different rates down to the criteria.
Somebody might have been self-employed for a year, while the next person has worked as a teacher for 12 years. Not all lenders will accept one year self-employment, while almost everyone will accept a teacher with good credit. It’s all different.
How much could I potentially save by remortgaging?
A few years ago I worked out I’d saved somebody £53,000 in interest payments just by them coming in to see me. They’d done their first mortgage as a first time buyer with a high street lender. They didn’t really ask many questions and took the maximum term of 35 years.
When they came in to see me we did a thorough fact find around affordability. The FCA wants you to use most of your disposable income to get your mortgage paid as fast as you can – but we’ve all got to live our lives. We want to go on holiday and have nice weekends. We want to do the things especially while we’re younger – but that’s when we’ve got most of our debt. We’ve got to find that middle ground.
With this client I took 15 or 20 years off the term. When I worked out the interest that they would save it was amazing, really. It’s a bit different at the moment, and people are extending their terms, over more years. That’s what we’ve been doing – it saved people a lot of money but can be reconsidered in the future if affordability improves.
People could be on variable rates and not realise they can switch. They just thought that was it – they got a really good deal for a couple of years and now I have to take this variable rate. You don’t. There are options out there – so pick up the phone to your local broker and ask them what your options are. It could save you a lot of money.
What documentation will I need to provide when remortgaging?
Exactly the same really as when you did your first mortgage, especially if you go to a new lender. As a broker we have to get that paperwork every single time to make sure that we’re doing right by the client and getting them the most suitable deal.
If we keep you with the current lender, they won’t always ask for any paperwork, but we have to have request for compliance. A new lender might not ask me for much – perhaps for a random payslip, because they know what compliance we already have to go through to get to application stage.
For a new mortgage lenders need ID and bank statements, proof of income, proof of deposit. To remortgage it’s just ID, bank statements and proof salary going in. If you’re self-employed it’s the last two years’ accounts and tax calculations. It’s not an awful lot.
Can I switch lenders when remortgaging?
Yes, you can. You don’t have to have a different lender every time you remortgage – it’s entirely up to you & your personal circumstances. Many of my clients do every time they come for a remortgage, especially if they want to do something different. They realise that while you might start with a 35 year term, they could have that paid off in 15 years if they can afford it.
Every time we look at your mortgage we will tailor it to your lifestyle now. If you get your first mortgage when you’re young, free and single, you might meet somebody, get married, have children… your income and expenses will change and affordability might shrink a little bit. You might want to extend your term at that point.
When the kids get a bit older perhaps you can reduce it back again. You can go to a different lender each time, borrow more money, pay some off, extend the term… It’s all very flexible and really down to your affordability.
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Will I need a new valuation or survey when remortgaging?
Every lender has to make sure the security for the property reaches what they need. Let’s say the property is worth £100,000 and we want a mortgage for £70,000. That’s 70% of property value and your rate will be for 70% and under. If the value is less than £100,000 then you’ll be looking at a higher rate.
Every lender can do a desktop valuation. They don’t necessarily have to visit the property. The bigger the equity, the lower the Loan to Value and the more equity you have available in your property. On a remortgage, lenders are less likely to send somebody out to look at the house.
If you’ve only got 10% or 15% equity they might do a physical valuation for lender purposes. It’s just to make sure that they’re happy to lend and that the property doesn’t have anything terribly wrong with it.
Can I remortgage if I’m self-employed or a contractor?
Yes, absolutely. We have lenders that will allow one year self-employed – but not many. It opens up a bit if you have been employed and then gone self-employed in the same job. Builders or tradesmen is a typical one. If you’ve got many years employed in that occupation and then lenders will often take a view on that.
We have a few lenders for CIS contractors within the construction industry. Some will take you as self-employed – they’ll average out the last three months over a 46 week year. Others will take you as employed because you’re paying 20% tax at source. We’ve got two or three lenders that’ll do that which can be really handy.
What happens if my property value has decreased since I initially obtained my mortgage?
It’s real bad luck if that’s the case. The best thing to do is talk to your current lender. They will do a House Price Index (HPI) valuation on it which is often quite generous.
If you feel you are in negative equity and need a remortgage, more often than not your current lender will give you an option based on what they feel the house is worth. There are always options out there, so ask the question.
If you were to go to another lender they might send somebody out to value it and confirm that your value has decreased. But your current lender won’t send anybody out as a rule, unless you’re asking them for more money. For a like for like, they’ll just take it off the HPI and go from there – usually they’re quite generous.
How often can I remortgage my property?
As often as you like – but there’s an important thing to consider which is penalties.
If you were to take a fixed rate deal or some tracker mortgages, you’ll get penalties for exiting the deal early. It’s called an early repayment charge.
To come out of that deal early you have to pay the bank a penalty. They offered you that rate for that amount of time. Most people therefore remortgage when their product is coming to an end, after their two-year, three-year or five-year deal, because they won’t have to pay any penalties.
What are the advantages and disadvantages of fixed rate versus variable rate remortgages?
Fix rates give you stability of payments. It helps you budget, especially if you’re a young family with young children and other expenses. If you’re happy to fix in for two, three, five, seven or ten years, that payment is never going to change within that period.
The downside to that is if rates were to fall then you’re still on that higher rate. This is what people are a little bit wary of at the moment. They are concerned that if they go for a five-year fixed rate now, if rates drop in a couple of years time they’re stuck with that and would have to buy themselves out of it by paying the penalties.
There’s pros and cons to being in a fixed mortgage. A tracker or a variable rate doesn’t give you that stability. If the Bank of England decides to put the rates up again, tracker rates will follow and so will variable rates. So it’s going to cost you more.
On the other hand, they say we’re getting to the upper end of the Bank of England base rates now, hopefully. If the base rate starts to come down then tracker rates and variable rates will follow. It all comes down to how well you sleep at night and what makes you comfortable.
Will it keep you awake at night on a tracker mortgage knowing that your payments can go up? Will you sleep more soundly knowing that your rate is fixed and is never going to go up?
Can I remortgage if I’m nearing retirement age?
Of course you can. We have lenders that take people up to age 85. We also have retirement mortgages. There are lots of different options.
If you’re concerned, get in touch. A lot of people out there are on interest only mortgages and have maybe buried their head in the sand a little bit or not had the right advice. They haven’t put it onto a repayment mortgage over the years and are worried now they’re getting towards retirement about how they will pay it off.
There are options out there. Call your bank, call a broker and discuss it. More often than not there’s a way out. We can do mortgages with pension income, we can do repayment mortgages. Lenders out there will take you up to age 85 if there’s an income coming in.
Brokers can help – we have good knowledge of all the lender criteria. A lot of people get put off by ringing their lender, asking to do something and being told it’s not possible. They feel deflated and think they will have to sell their home. That’s not necessarily the case. Call a broker – we’ve got knowledge of many, many lenders.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up with your mortgage repayments.
You may have to pay an early repayment charge to your existing lender if you remortgage.
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