Homeowners: Five actions that could derail your earlier-secured remortgage deal
As interest rates have risen over the past year and a half, homeowners with fixed rate mortgages maturing in 2023 were urged to lock in a deal up to six months in advance to cushion the blow. If you took this on board, make sure you don’t derail the mortgage offer.
A staggering 1.5 million fixed rate mortgage deals are set to mature in 2023 (800,000 in the second half of the year), with homeowners braced for big hikes in their monthly payments when they come to remortgage.
As the Bank of England base rate has risen from its historic low of 0.1% in December 2021 to 5% now, many experts suggested homeowners lock in a deal up to six months in advance to help them secure a better rate before further hikes.
For those who have secured a remortgage deal months in advance, it’s vital you don’t take any action which could derail the offer meaning you would need to apply for another deal, be subject to affordability checks and could see higher rates and subsequent higher mortgage bills.
David Hollingworth, associate director, communications at L&C Mortgages, said: “Once you have an offer it should be binding but that of course assumes there isn’t any material change in the borrower circumstances.
“If there was something that affected income or if a job was lost then that would amount to a material change. That could therefore see the offer withdrawn and having to start over if the affordability didn’t stack up any longer. Affordability may have tightened a little as well due to rates and costs increasing.
“The other thing to be careful about is that the dates for the offer are in line with what’s needed. It may not be possible to extend the offer if it expires and that could prove costly if needing to take a new deal.”
Hollingworth added that homeowners should make sure the conveyancing is all ready to put the new mortgage in place at the right time.
“Any delays on that at the last minute could risk reaching the end of the mortgage. That’s possibly more common in the case of a purchase but is something to keep on top of with a remortgage as well.”
Karen Noye, mortgage expert at Quilter, added that if your circumstances have changed significantly this could result in the mortgage being re-offered on new terms or even declined.
“This can happen if someone’s credit score has reduced since the original application was made and they no longer meet the lender’s credit scoring requirements or if they have taken additional credit and no longer meet the affordability criteria,” she said.
Below, Noye lists five things you need to be mindful of during the period between securing a remortgage and the deal completing, which could be over a period of six months:
1) Existing debts
When applying for a remortgage, you have the option to apply on the basis of existing debts being repaid before the deal starts which will form part of the special conditions in the mortgage offer. It is important to keep track of the debts you have and the commitments you made within your application as you must meet them or risk the offer being withdrawn.
2) New credit searches
A lot of borrowers do not realise the impact of credit searches on their credit score. With people looking to make the most of offers and cashback deals, they often change bank account and credit providers more frequently.
While you do not want to be paying more interest than you have to, recent credit searches and credit applications can have an impact if your lender checks your credit score, so it is best to hold off on doing this if you are waiting for a remortgage application to complete.
3) Buy now, pay later
The cost-of-living crisis is having a real impact on everyday finances and some people may be tempted to use interest-free deals or buy now, pay later offers on items that are not really needed or that they could pay for without the use of credit.
For example, there is often the option to ‘buy now, pay later’ when buying clothes online, but even if it is a small purchase it will have an impact on your credit score which could lead to your lender withdrawing the offer.
4) Large purchases
In addition to smaller buy now, pay later deals, larger purchases such as a car on a finance deal can have a significant impact on your remortgage application as it will reduce the amount of cash you have to spare which could result in you no longer meeting the lender’s affordability requirements.
5) Credit score
It is always a good idea to get your finances in order and check your credit score and history before applying for a mortgage. If issues arise after the application has been submitted it may result in a declined application or time lost trying to resolve the matter. A lot can change in a six-month period, so it is important to continue to keep track of your finances and credit history.