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Remortgage
All about the remortgage process with Adam Riches.What is a remortgage and how does the process of remortgaging work in the UK?
A remortgage is technically the swapping of a first charge from one lender to the next.
The vast majority of residential homeowners in the UK have fixed rates on their mortgages, which tend to come in either two year or five year tranches. At the end of those two or five year periods, the pre agreed interest rate lapses.
If homeowners do not do anything about refinancing their property, they slip onto the ‘standard variable rate’ which is considerably higher than their current rate.
So, in essence, it’s coming to the end of a contract – and that can be renegotiated approximately six months in advance to get the best possible deal moving forwards.
How long does it take to remortgage?
In an ideal world, it should probably take two to three weeks to get the mortgage offer through. It can be done in two to three days – it all depends on a variety of factors: who the lender is and how much equity the clients hold within their property, for example.
What it essentially boils down to is the perceived risk that the lender has in that property. If they see that you own 90% of the property in a desirable part of the country, they know their lending is going to be safe. They’re probably not going to do as many underwriting checks.
Meanwhile, if the client owns an ex-local authority property with a 5% or 10% deposit, the lender will want to do a valuation on the property and underwrite all of the case very diligently.
It generally takes somewhere between one and five weeks. My advice to clients is to try and get everything sorted as soon as possible, because you’ve then got to go through the conveyancing process, which again can take three or four weeks. So give yourself time.
What are the main reasons why people choose to remortgage?
If people do not remortgage, they are likely to slip onto the lender’s standard variable rate. Just to give an indication in January 2024, people who took out a two-year fixed rate deal in March 2022 will have their deal end in March 2024.
The rate in March 2022 was probably around 2.5%. Currently, standard variable rates are between 7.5% and 9%. So if people don’t take action they will go on to that standard variable and their monthly repayments will go up significantly.
You also have the option to do a Product Transfer or Product Switch with your existing lender. But by doing that you’re not giving yourself the best opportunity to see what’s out there and get the very cheapest rate.
What happens to my existing mortgage when I remortgage?
When you remortgage, the existing charge gets paid off – that’s why a solicitor is required. Most remortgage products come with free conveyancing. I won’t pretend they’re the best or most efficient conveyancers on the planet – that’s another reason why I advise clients to give themselves as much time as possible.
When the conveyancer assists in changing over the charges, they will pay off the existing charge and then put the new charge in place with the new lender.
What happens if I don’t remortgage after my deal expires?
If you don’t remortgage after your deal expires you will slip on to the standard variable rate which is a significantly higher interest rate. It means that your monthly repayments become significantly higher.
What factors should I consider when deciding whether to remortgage?
A variety of factors should be taken into consideration. The first thing is having a look at a pound for pound remortgage and seeing what the loan to value on the property is, based on a current valuation.
We’ll see what the interest rate looks like and what the monthly repayments will be. If clients need to pull money out of their property to do some home improvement work, we’ll see how that will impact the monthly repayments.
If you’ve got savings or you’ve inherited some money, we will look at how making overpayments on your mortgage at the point of completion will impact the loan to value, interest rate and monthly repayments.
Can I remortgage to consolidate my debts?
You can. It’s done on a case-by-case basis. Lenders will stress test debt consolidation at a higher rate, as there is a perceived opinion that if a client has run up considerable debts via credit cards, loans, cars, etc, they are likely to do it again.
If the bank consolidates their debts into their property and they get back into debt, will they be in a financially strong enough position to do consolidation again in the future?
I would heavily advise clients not to rack up credit card or or loan debt thinking that they will 100% be able to consolidate it into their property in the future.
Can I remortgage if I have bad credit?
Yes. Your options may be more limited, though. For example, the high street lenders are more interested in ‘vanilla’ cases, while specialist lenders will almost certainly offer you a solution. Some of these are offering fairly competitive rates at the moment.
Again, I would stress the ramifications of running up bad credit in your name. Please don’t do that thinking that you can simply get a remortgage. Your options will be limited and we strongly advise you not to do that.
Will I have to pay any fees or penalties when remortgaging?
You might have to pay a fee to change products. You can remortgage early and get out of an existing charge, but you may be liable to pay early repayment charges.
Most people only remortgage when their existing mortgage product is coming to an end. But at the peak of interest rates in July, August and September 2023, they were 5.8% to 6%. Rates have since come down, so there Is the option to pay the early repayment charges, consolidate that into your mortgage moving forwards and in turn reduce your monthly payments. [podcast recorded in January 2024]
So, yes, there can be fees and charges but any good mortgage adviser will be taking these into consideration within the overall cost of transferring your mortgage.
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What are the current interest rates for remortgaging?
As we speak today on 18 January 2024, interest rates have been falling since the new year. They’re back to a level in line with last April/May. That’s fantastic for clients.
People are obsessed with the interest rate, but that should not be the only factor you consider when purchasing a property or remortgaging. There are other costs with any mortgage – valuation fees and product fees for example – that should also determine your options.
We need to understand the size of the mortgage required and the loan to value on the property. And most lenders offer two forms of products – one with a fee and one without.
If your mortgage is more than £200,000 it sometimes works out better to pay a £999 product fee for a lower interest rate. If you’ve got a lower mortgage balance, it almost certainly won’t pay to take a lower interest rate with that fee.
Speak to any mortgage adviser and we will advise you on the most suitable product for your circumstances.
How much could I potentially save by remortgaging?
I always reach out to my clients six months in advance of their remortgage date. For example, I had a handful of clients whose mortgages were due to renew on 31 March 2024, so in early October 2023 I contacted them.
The quote I provided then would have been a fair bit higher than it would be now. But each time lenders reduced rates in the past few weeks I have been able to renegotiate that rate. That’s easily saved clients four figure sums over a two year fixed rate period.
The truth is that most people’s mortgage repayments will go up compared to what they were two or five years ago. So I wouldn’t say people are saving on a like for like basis.
But they’re almost certainly going to be saving if they shop around rather than just doing a product transfer with their existing lender. They will definitely save money by remortgaging rather than slipping onto the standard variable rate.
What documentation will I need to provide when remortgaging?
It’s generally the same documentation as when applying for the mortgage in the first place. It tends to be proof of ID and proof of address – preferably a council tax statement or utility bill.
If you’re employed, you need three months pay slips. If you’re self-employed it’s the last two years tax returns, including SA302s and tax year overviews. You also need the last three months’ bank statements as well.
Can I switch lenders when remortgaging?
Remortgaging is switching lenders. If you were to just simply do a product transfer, that’s sticking with your existing lender. Remortgaging is moving away to a different lender.
Will I need a new valuation survey when remortgaging?
This is down to the discretion of the lender. Do they perceive there to be enough security in the property to not warrant doing an actual valuation?
Some lenders will do a desktop valuation and some will send someone out to do a full valuation. It’s on a case-by-case basis. Generally the client doesn’t need to concern themselves with that – the lender will take that action for them.
Can I remortgage if I’m self-employed or a contractor?
Yes, certainly. If you’re a contractor, your options will be a little more limited, depending on how long you’ve been contracting and your line of work.
If you’re self-employed, it can be harder to remortgage due to the perceived risk from the lenders and the underwriting teams. They are concerned about people being able to keep up with monthly repayments.
It’s on a case-by-case basis, so if you have a question, talk to a mortgage advisor and we’ll give you a good steer on what’s possible for you.
What happens if my property value has decreased since I initially obtained my mortgage?
Again, it’s on a case by case basis. It depends how much the property value has decreased and what equity is left in the property. You still will be able to find a solution. It’s nothing to be concerned by.
Obviously if your property value has gone down it’s potentially not going to be as beneficial as it if it had gone up, but you still can remortgage – there will be options available to you.
How often can I remortgage my property?
You can remortgage your property as often as you wish, but there are costs associated with doing so.
Most lenders have a rule in place where you have to wait six months before remortgaging. Some will allow a ‘day one remortgage’ – if you did want to remortgage the day after you moved in somewhere, you would be able to find a solution. But again you may incur early repayment charges or various penalties.
It may not be cost effective to do so, but if it’s essential, there would be an option available to you at any point, provided you pass affordability and credit searches.
What are the advantages and disadvantages of fixed rate versus variable rate remortgages?
A fixed rate provides stability. At present, in January 2024, fixed rates are cheaper than variable rates, because the Bank of England base rate is still high at 5.25%. Market analysts are estimating that the base rate isn’t going to come down until May or June this year, but lenders are already lending money out at lower rates, because long term that rate is going to fall.
Variable rate mortgages offer more flexibility and at certain times they can be cheaper, as well. Again, everything is done on a case by case basis. You need to assess the situation and what’s best for yourself at the time. It is a tricky question, where I can’t give black and white answers.
Can I remortgage if I’m nearing retirement age?
Yes, certainly. I’m doing a remortgage at the moment for someone who is 72 years old. You can remortgage once you have retired as long as you’ve got some form of income, whether it’s pension income or an income from land or property.
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.
