Mortgage maturing soon? What you need to know about remortgaging
When your existing mortgage deal, say a fixed rate or discount, comes to an end, you may want to change to a new deal with your existing lender or move your existing home loan from one provider to another in order to take advantage of a better deal. This is known as a remortgage.
If you do nothing and stay with your existing lender, you’ll be switched to its Standard Variable Rate (SVR) at the end of your deal which could result in higher monthly mortgage repayments.
If you’re looking to stay with your current provider and take out another product with it, this is called a product transfer or internal remortgage.
The perfect storm
Figures from mortgage market database CACI shows approximately £17bn worth of mortgages in the UK are due to mature in September and over £18bn in October, so now could be a good time to consider a remortgage.
Rachel Springall, finance expert at data site Moneyfacts, says with the falling mortgage rates, borrowers who decide to switch to a more competitive rate will notice the benefit immediately by their lower monthly repayments.
She says: “Borrowers who come off an average SVR of 4.60% today and switch to the average five-year fixed rate of 2.80% would save £146.48 a month on their repayments, which is £8,788.80 over a five-year period – cash that could be put to better use considering the rising cost of living.” (Based on a repayment-type mortgage of £150,000 over 25 years).
Aside from the headline-grabbing rates and savings, here’s what else you need to know about remortgaging:
The Mortgage Market Review (MMR) which came into effect in 2014, introduced far stricter lender assessments to check whether people could afford the mortgage they apply for. This includes those who are remortgaging.
This means a borrower’s income and spending behaviour is closely examined, including an assessment of non-essential spending. Exact criteria vary from lender to lender but may include TV subscriptions, takeaways, holidays, haircuts and even any money you pay to family on a monthly basis to help them out.
For those remortgaging now who may not have undergone the post-MMR application process, it’s best to prepare sooner rather than later. You need to be aware of your spending habits between three and six months before you ideally want to remortgage, giving you plenty of time to make changes to your cash flow which may help your application.
Charles Mungroo, mortgage manager at Yorkshire Building Society adds that new customers (i.e. those remortgaging) will also need to provide proof of identity and address. Credit checks will also be carried out.
Can you remortgage?
Springall says that while these low rates on mortgages are tempting, not everyone will find they’re eligible to change their deal, especially if they are just about managing.
“Regardless of whether you can demonstrate that your monthly repayments would fall, if you are unable to prove you could afford a future rise to your interest rate, then you could end up as another mortgage prisoner,” she says.
A change in circumstances such as going from a two-income household to one or going from employed to self-employed can also hinder your chances of getting a competitive remortgage, according to mortgage adviser John Charcol’s senior technical director Ray Boulger. He says: “For a range of people, it will be easy for them to remortgage, but others who see a change in their circumstances now might struggle. It’s always worth checking to see what your existing lender will offer. If it’s close enough to the market leader, you may find it easier to stay, even if say a competitor’s offering a rate that’s a quarter point lower, for instance.”
Mungroo adds that if a borrower’s loan-to-value (LTV) has decreased, they could borrow more money by remortgaging if they want to free up cash to make any home improvements. In contrast, those whose LTV remains high may not be able to borrow more money.
When can you remortgage?
If you feel like your previous cheap fixed rate is now looking expensive, it’s essential to check the Early Repayment Charge (ERC) which accompanies most fixed rate deals to see how much it will cost you to move to another lender before your mortgage matures. See YourMoney.com’s Record low mortgage rates: is it worth paying a penalty to get out of a fix early? for more information.
Otherwise, your existing lender or broker may contact you around three to six months before the end of the deal, according to Boulger.
“It varies from lender to lender when they contact you but generally it’s three to six months in advance. However, not every lender does contact every borrower so far ahead due to commercial reasons. They’ll be keen to retain customers but they may employ data to see the likelihood of a customer remortgaging elsewhere or the chance that they stay on the SVR. From a regulatory point of view, lenders must treat customers fairly and they will have to contact you at least a month before maturity to let you know about the changes and options available.”
What you need to watch out for
The best mortgage doesn’t necessarily come from the lowest rate deal, Springall cautions, which is why borrowers should always look at the overall true cost before they commit.
She says: “Selecting a mortgage product that offers a free valuation, free legal fees and no product fee can help borrowers with limited cash upfront to secure a new deal.”
Mungroo echoes this point: “Borrowers with small mortgage debts, for instance under £50,000, should consider looking at low or fee-free loans if they are planning to remortgage because opting for a product with high fees may counterbalance any savings they would make from a lower interest rate. It’s also important to be aware that some banks and building societies won’t lend less than £25,000.”
Remortgagors also need to be aware of any other fees as part of the process such as any associated legal fees (which would be determined by a third party separate to the mortgage provider) or a broker fee.
Current best buys
Here are the current best buys, according to Moneyfacts (click on the image to expand):