How to remortgage
Doing nothing and staying with your current lender after the end of the agreed term of your mortgage, say two or three years, will mean that you revert to the lender’s Standard Variable Rate (SVR).
If this rate is relatively attractive, you may not want to bother remortgaging. And if you have not built up much equity in your property, you may not be able to remortgage, as many lenders now insist on a minimum of 10% equity in order to secure competitive interest rates. But if you have a lot of equity in your property, you may well be able to remortgage onto a more attractive interest rate. Price comparison websites can give you an idea as to whether you are paying too much.
Reasons for remortgaging
Typical reasons for remortgaging tend to be to get a better rate (especially if your initial deal period is over and you are about to revert to an uncompetitive standard variable rate), to consolidate debt or to release equity.
You may also have to remortgage if you want to move house. In such a situation, even if your lender will allow you to transfer your homeloan in theory, it will probably require a valuation of the property to ensure it meets its standards.
Remortgaging needn’t only occur when your mortgage term comes to an end. Some people take out a new mortgage simply to save money on their monthly repayments. For example, you may take out a fixed rate mortgage only for interest rates to plummet, leaving you stranded on a higher rate. Remortgaging to a more competitive rate in these circumstances may make financial sense.
Bear in mind that remortgaging is not cost-free. Your current mortgage may carry penalties or charges if you try to leave it early, plus there will probably be costs associated with the new deal, so factor all of this into your decision.
The sub-prime remortgage
If you had an impaired credit record (you may have previously been declared bankrupt or received a County Court Judgement) and took out a sub-prime mortgage in the past, you are likely to be paying a higher interest rate than a mainstream mortgage as you represented a higher risk to the lender.
But the intention of sub-prime mortgages was rehabilitation. If you have been successfully making your monthly mortgage repayments for a number of years, and you have managed to build up sufficient equity in your property, when you come to remortgage it will make it more likely that you will be able to access a standard mortgage deal.
Bear in mind that, as lenders have pulled out of the sub-prime mortgage market, if you have not repaired your credit rating that could make it difficult, or perhaps even impossible, for you to remortgage.
Lenders must meet stringent regulations when assessing affordability, particularly in the buy-to-let sector. Although mortgage rates are still attractive, thanks to continued low interest rates, it can be difficult to secure the best deals. This has led to the rise of ‘mortgage prisoners’ – those borrowers stuck on a lender’s (usually higher) variable rate and unable to secure a lower fixed rate deal.
Lenders are being tighter with who they lend to and how much they lend, so if you bagged yourself a good mortgage deal a couple of years ago, don’t necessarily expect a similar rate this time round. You may find that you need to build up more equity in your property before you can remortgage. Having said that, 90% deals are making a tentative comeback and rates are falling, so it is still worth investigating.
How to remortgage
If you are staying with your existing lender, then remortgaging should be relatively straightforward. Your lender will probably contact you before your mortgage term expires to talk through your options.
If not, you can get in touch with them. If you feel a bit overwhelmed by the choice, then you may like to enlist the help of a mortgage broker. Not only will they be more adept at finding the right mortgage for you, they also have access to products that aren’t available direct to consumers. There are also online brokers such as Habito or Trussle, which can take some of the hassle out of switching.
All mortgage brokers are regulated by the Financial Conduct Authority, meaning they are bound by a code to treat customers fairly. They have to find the deal that is right for each borrower and can not just recommend products that may be lucrative for themselves. Bear in mind that they may charge for their services, which could be a factor in whether you choose to go it alone or not.