Residential property specialist, Victoria Cranwell, considers remortgaging, and explains what you should consider before committing to a new mortgage product.
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With the Bank of England increasing its base rate in December from 0.1% to 0.25% and predictions of further rate rises ahead to help counter rising inflation, many of us not currently locked into fixed deals will be thinking about remortgaging.
When can I remortgage?
Subject to meeting lending criteria, you can remortgage at any time. But if you are currently on a fixed deal, you will almost certainly incur early repayment penalties – which can be significant – as well as fees and charges connected to your new mortgage.
Why do people remortgage?
Remortgaging refers to taking out a new mortgage with a different lender on a property you already own. Moving to a new deal with your current lender is called a product transfer. Remortgages now account for around one in three home loans in the UK. In recent years, remortgaging has become increasingly common as homeowners have taken advantage of historically low interest rates.
There are a variety of reasons that you may consider remortgaging. Among the most common are:
- Your fixed rate is about to end: Whether you have a fixed rate, discount or tracker mortgage, if you do nothing when your current deal comes to an end, your lender will switch you to their standard variable rate.
- Rising interest rates: It’s important to remember that whether and when a rise in the Bank of England base rate will affect you will depend on the terms of your current mortgage deal. Some people – often the more cautious – will have locked themselves into a deal for several years, taking slightly higher repayments on the chin in return for longer-term certainty. If your current deal still has a few months to run, some lenders will allow you to switch to a new fixed-rate immediately with no penalty.
- The value of your home has increased: The value of most residential property has increased significantly in recent years. You may well find this means your lower loan-to-value ratio will qualify you for a better interest rate deal.
- Switching from an interest-only to a repayment mortgage: Historically, some people still have interest-only mortgages. In most cases, you will not need to remortgage as a responsible lender should agree to make the switch for you.
- You need to raise money: There are many reasons you may need to raise money, and rising house prices mean that achieving that by remortgaging has become an option for many. When approaching a new lender, be prepared to be quizzed about your plans for the money. For example, many lenders will baulk at advancing funds to you for business purposes. And if your plans are home improvements or reducing/discharging debt, expect the lender to request proof!
- You wish to overpay: If you can afford to, overpaying on your mortgage, either regularly or by occasional lump sums, reduces the repayment period, potentially saving you thousands of pounds in interest. However, mortgage deals often limit the amount of overpayment you can make or prohibit it altogether, unless you are prepared to incur penalty charges. However, you may find a new lender who will allow you to make greater overpayments without penalty.
Advantages and disadvantages of remortgaging
Before deciding whether to remortgage, it’s essential to do your research and crunch the numbers thoroughly as there may be one or more good reasons not to remortgage:
- High early repayment charges: A new rate may seem very attractive, but if you are still on a fixed deal, it could cost you more in early repayment charges and arrangement fees than you stand to save on the new deal.
- You have a small mortgage: Once the balance of your mortgage falls below a certain level, it may not be worth re-mortgaging once you take into account the fees.
- You have very little equity: As a general rule, the greater the equity in your home, the better the available deals will be. But, if your equity is less than 10%, you may struggle to find a significantly better rate.
- Changing circumstances: In recent years, lending criteria has become much stricter, and while you may never have missed a repayment, your current circumstances may make it more difficult to meet those criteria. For example, perhaps you have recently become self-employed, or you or your partner has stopped working. You may still be able to move to a new deal with your current lender, but it may not be the best deal available. On the positive side, there are usually no, or lower, fees on a product transfer.
- You have had credit problems: The Financial Conduct Authority requires lenders to check that a mortgage product is affordable, not just at the discounted rate, but at a higher rate to ensure that it’s manageable if interest rates rise. Expect lenders to ask for considerable information regarding your income and outgoings, as well as wanting to see an excellent credit history.
Is now a good time to remortgage?
Depending on your circumstances, there are still plenty of excellent deals available. However, whether it’s a good time for you to remortgage will depend on many factors, some of which are highlighted above. To reiterate, do your research and consider the numbers very carefully.