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Andrew and Jess explain how remortgages work and when to start exploring your options

What is a remortgage and how does it differ from a regular mortgage?

A remortgage is when a current mortgage is coming to the end of its initial rate period. If no action is taken, the client would fall onto the lender’s standard variable rate, which is often much higher.

A remortgage allows a borrower to secure a new rate with a new lender, potentially on more favourable terms. It might save money compared with staying with their current lender.

In terms of the main difference between a remortgage and a regular or purchase mortgage, the process is less complex legally, and it requires less time to complete.

How does the process of remortgaging work in the UK?

It’s very similar to the purchasing process, but is less complex. Initially we’d complete a mortgage fact find with the client. We would then recommend the most suitable solution to meet their needs and objectives.

All being well, we would submit the full mortgage application to the new lender, saving time and providing expert advice. Once the mortgage offer is issued, the assigned solicitor will complete the legal work for the remortgage.

We help you complete the legal paperwork, satisfy any ID requirements and make sure the mortgage completes quickly and smoothly. The final steps of the process are to sign and witness the lender’s mortgage deed and set a completion date – usually the day after the initial rate is ending, so there are no penalties involved.

How long does it take to remortgage?

A typical remortgage would usually be around four to six weeks from the point of application to completion. However, some have gone through in just one or two weeks where time is absolutely critical.

I recommend speaking to a mortgage advisor at least six months before your mortgage rate is due to end. That gives us sufficient time to research the market and secure a rate in advance for you. Most lenders do allow that up to six months ahead.

The mortgage offer would be valid until the end date of your current mortgage rate. In practice, then, if rates were to go up between application and completion, you’d be unaffected. You’ve secured the best rate you possibly can.

Conversely, if rates were to fall, we can look at securing a lower rate with the same lender on a new product. And, if there is a sufficient saving to be made we can apply again with another lender to save you more money.

What are the main reasons people choose to remortgage?

The main reason would be to avoid going onto the current lender’s standard variable rate, which is ultimately higher. They want to save money.

Remortgaging offers a good choice across the market – not just from one lender that you’re currently with. Having a mortgage advisor to explore the options for you is truly beneficial.

What happens to my existing mortgage when I remortgage?

The existing mortgage will be what solicitors called ‘redeemed’ at the point of completion. Typically most clients pay the mortgage at the beginning of each month, after being paid. Lenders’ rates tend to finish at the end of the month, so there can be a slight crossover with the last payment in the billing cycle and the settlement of that mortgage.

I tend to suggest that we let the last mortgage payment go through, even if you completed the day before. Your current lender will automatically refund that to you. If you don’t make that payment, there is a danger that might go down as a missed payment on your credit file.

So keep that direct debit in place, let that payment come out and then any refund will be automatically sent to you.

What happens if I don’t remortgage after my deal expires?

If you decide to refrain from remortgaging and let your current deal expire, it will revert to the lender’s standard variable rate. That would ultimately result in a large increase in your monthly payment.

It’s only a suitable move in rare circumstances, perhaps where you are expecting to repay the mortgage in full quite quickly and you need flexibility to pay without incurring any charges.

What factors should you consider when deciding whether to remortgage?

This comes down to your situation and plans. Are you perhaps expecting a large lump sum such as inheritance? Has there been any change in your circumstances or your income?

Often, people who have been employed for a long time decide to go out on their own and be self-employed. On that basis, lenders wouldn’t typically accept their income until they have a longer track record of self-employment.

In that event, we would look to do a Product Transfer or rate switch with your current lender, as that wouldn’t have any income checks. However, it’s always best practice to research the whole of the market to make sure we have the most suitable deal on the market for you.

Can I remortgage to consolidate my debts?

Yes, it is possible to remortgage and consolidate debts such as credit cards, personal loans and car finance. However, as responsible advisors here at Asset Harbour, we would always check whether this is the right thing for you to do.

Although your monthly debt payments are likely to reduce, adding these onto the mortgage extends how long you’re paying them for. That’s going to increase how much interest you pay. We’ll have a frank conversation with you and look at the pros and the cons from both sides and make a decision on whether it’s the right thing to do for you.

Can I remortgage if I have bad credit?

You can. We have access to lenders that can consider applicants from all types of adverse credit – including things CCJs, defaults or missed payments. Even previous bankruptcies are acceptable with some lenders.

Some lenders don’t even credit score an applicant, which can be useful. It’s always worth speaking to an adviser. Don’t just assume that you can’t remortgage – we’ll look at the options and go from there.

Will I have to pay any fees or penalties when remortgaging?

The fees associated with remortgaging would usually include a lender fee which does vary. We will factor this into the true cost of the mortgage, but it ranges from zero up to £999. Lenders also give you the option to pay this upfront at the point of application, or to add it onto the mortgage. You would then pay interest on this.

Our fee here at Asset Harbour is £395 for a remortgage, split into two payments. £200 is due on mortgage application and then £195 due on formal mortgage offer. Other costs to consider are solicitors fees, which are normally included as part of your remortgage. Lenders either offer a fixed price remortgage option, where they offer you cashback, or free legals where you use their solicitor at no cost at all.

The only time penalties would occur is if you redeem your mortgage early during your fixed rate period. We always look to avoid these where we can, by having your existing rate end and your new mortgage rate begin the next day.

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We can advise how much you can borrow, find the most suitable lender and have that Decision in Principle in place. Then, when you do make an offer on a property, you’re ready to go.

What are the current interest rates for remortgaging?

Interest rates vary depending on the applicant’s individual circumstances. At the moment [podcast recorded in January 2024] the lowest interest rates are below 4% – they’ve come down quite a bit since the beginning of January.

It is difficult to comment on rates as these change on a daily basis and could be out of date by the time somebody’s listening to this.

How much could I potentially save by remortgaging?

Compared to running onto the lender’s standard variable rate, the savings could reach hundreds if not thousands per month for a larger mortgage.

We have access to a wide range of lenders, so if there is a better deal for you where you can save some money we would definitely be able to find that for you.

What documentation will I need to provide when remortgaging?

It’s quite simple, just proof of ID, address and income which can include things like payslips if you’re employed, or accounts or tax calculations if you’re self-employed. Plus, ideally, a current mortgage statement so we know your outstanding mortgage and when your current rate is coming to an end.

Will I need a new valuation or survey when remortgaging?

The new mortgage lender will instruct a valuation of your property to determine the market value at that particular time. This is normally free of charge, but some lenders do charge a small fee for this, of £100 to £200.

We will look into that for you and factor it into the savings you’ll make. We will be fully transparent with you on that.

A structural survey is something that’s more in depth and wouldn’t necessarily be required on a remortgage unless the valuation comes back with any concerns. A damp report or an asbestos report may be needed if the valuer sees anything that they are worried about. We would always let you know if that arises and we can make decisions from there.

Can I get a mortgage if I’m self-employed or a contractor?

You can, of course. We can find solutions for even the most complex of income setups. That can include people that fall inside and outside of IR35, plus people paid through umbrella companies, limited liability partnerships and everything in between.

It’s no problem at all if you’re on a fixed term contract, or a temporary worker. We’re usually able to help.

What happens if my property value has decreased since I initially obtained my mortgage?

Firstly, don’t panic. There is always an option for you, whether that’s a remortgage or rate switching with your current lender. If your property has decreased in value, there’s a chance you have entered into a higher Loan to Value bracket, especially if the mortgage balance hasn’t decreased in the same line as the value.

The worst case scenario is that remortgaging isn’t an option. But we can still secure a new rate with a product transfer with your existing lender.

How often can I remortgage my property?

Whenever you like. Ultimately, it’s dictated by when your current interest rate is ending or if you need to raise additional funds. If you were to remortgage whilst in a fixed rate period, you would usually need to pay an early repayment charge. It might not be cost effective to exit that mortgage early.

A five year fixed deal is quite common at the moment. If you did want to remortgage in three years’ time that’s fine, but there would likely be a penalty for doing that. It’s about weighing up the pros and cons.

If interest rates have fallen significantly, it might be cost effective to secure the new lower rate and save you money over the full term – even factoring in that early repayment charge. It’s just important you speak to an advisor to work out the true cost for you.

What are the advantages and disadvantages of fixed rate versus variable variable rate remortgages?

Fixed rate products provide certainty of payments each month, allowing you to budget over a long period of time. That carries less risk compared to a variable rate option.

But as fixed rates usually carry early repayment charges, this does commit you for a set period of time. If interest rates were to fall, it’s unlikely you would be able to exit the mortgage and get a lower rate without incurring an early repayment charge.

Variable rates could potentially benefit clients who feel interest rates may fall, as that would result in lower payments. But this does carry the risk of increased payments if interest rates were to rise.

Can I remortgage if I’m nearing retirement age?

You can. It does depend on how close to retirement you are. If you’re more than 10 years from retirement, some lenders can take you beyond retirement age using your earned income. You will need to evidence that you’re paying into a pension – perhaps just by showing your pension deduction on your payslip.

Or, you may need to show that you have some form of pension provisions continuing after you retire. If you are looking to take out a mortgage within 10 years of retirement, usually the lender would look at your pension provisions at that time – which could be lower than once you reach retirement.

Another solution is later life lending or a lifetime mortgage. Those mortgages have no income checks and are purely based on the value of your property and your age. Providers will lend you a portion of the value of the property. No payments need to be made and it’s only repaid when you die or you go into care.

PLEASE NOTE: Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage. You may have to pay an early repayment charge to your existing lender if you remortgage.