Published 16th August 2017
A lot of first time mortgagers and those on their first mortgage ask us what does remortgage mean, and how does remortgaging work? Without having had one before many of our experiences stop at the monopoly board, but to be fair the concept is the same, although the process unfortunately not so straightforward. There's many remortgage options available, read on for thorough remortgage information on the following...
- Remortgage definition
- How to remortgage in 4 easy steps
- What to do if you’ve been declined for a remortgage
- Remortgage FAQ
What is a remortgage?
Basically a remortgage is where you own a property and borrow money from a lender who takes a charge over it. You may own it outright, or already have a mortgage on the property and are changing lender for a better deal or more money, either way it is known as a remortgage.
Standard mortgage swap
There's 2 remortgage options when changing your rate, you can either swap to a new lender or make a product transfer with your existing provider. This is where you literally just swap the deal you have to another one without borrowing more cash - usually for a better rate. If you are switching mortgage provider, the new lender will basically pay the money released to the old lender via a solicitor, and then the mortgage continues on the new terms. These are usually limited to a maximum loan to value (LTV) of 90%, however some specialist deals are available at 95%, or higher if you just switch your product with the same lender.
Borrowing more money
When you want to release cash out of your property, the process is the same as a mortgage swap, but the additional money borrowed is paid to the solicitors and then into your account (or sent as a cheque). When you're borrowing more money, lenders can limit the LTV depending on what you are borrowing for. The table below gives rough outline of what's usually possible in the current market.
|Most lenders||Specialist lenders|
|Mortgage swap (No additional £)||90%||95%|
|Buy furniture, electrical or white goods||80%||90%|
|Buy car, caravan or boat||80%||90%|
|Pay for school fees||80%||90%|
|Pay for medical expenses||80%||90%|
|Other personal consumption||80%||90%|
|Buy final share in shared ownership||90%||90%|
|Buy a self build home||75%||80%|
|Purchase a second home||80%||90%|
|Buy a holiday home||80%||90%|
|Buy freehold or new extended Lease||80%||90%|
|Buy a share in the freehold||80%||90%|
|Buy land to extend security||80%||90%|
|Invest, save, or share purchase||Not usually allowed||90%|
|Invested for business purposes||Not usually allowed||90%|
There's many reasons why a home owner would want to remortgage, whether rasing more cash or changing lender, the benefits can be massive. Save money on interest paid, fix your rate against future increases, change your term and make monthly payments more affordable, there's loads that can be done.
How to remortgage
Remortgaging your home is a relatively simple process for most homeowners, however some borrowers can find it tough if they don’t have much equity or circumstances have changed since their previous mortgage application.
Step 1) Establish your loan to value (LTV)
The first thing to do before you start the remortgage process is to calculate...
>How much do you want to borrow? (The total new loan size, so old mortgage plus any additional borrowing).
>What is your house worth? (if you have no idea, visit Zoopla or mouseprice)
Then divide the loan value by the house value and multiply by 100, so:
100k (house) / 75k (loan) * 100 = 75%
Step 2) Ensure you can afford the new loan
This varies from lender to lender, as each takes different income into account and also has a different strategy when it comes to how generous their calculator will be – but generally if you establish your annual income, take off any annual outgoings, and then multiply by 4, this will be the approximate max loan (Although some lenders go up to 5x). So:
Applicant 1 Basic income = 20k, plus bonus 5k
Applicant 2 Basic income = 10k, plus bonus 1k
Joint income = 20 + 5 + 10 + 1 = 36,000
Applicant outgoings = credit card £50 per month, personal loan £250 per month
Joint outgoings = 50 + 250 x 12 months = 3,600
Net income = 36,000 – 3,600 = 32,400
Typical Maximum Loan = 32,400 x 4 = £129,600
Absolute Maximum Loan = 32,400 x 5 = £162,000
use our mortgage calculator here to work out what you can borrow
Step 3) Decide what type of mortgage you want
- Fixed Vs tracker, Repayment Vs Interest only etc, Visit our remortgage advice page for more on these.
Step 4) Find the best deal
Use the LTV you worked out in step 1 to search for products that you are eligible for, and then...
Use a whole of market remortgage broker (recommended – of course!)
For standard applications (those looking for best rates with acceptable income and credit history) brokers can help you with a market search and will usually take care of the work for you, saving you hours of time and mortgage headaches along the way. You will usually have to pay for this service however, but it’s almost always worth the fee when they save you money on what you’d pay going straight to your bank without shopping around. Often the advice pays for itself within a few months of cheaper payments.
You'll have the option of fee loaded or fee free remortgages, and usually valuation and legal services are inlcuded in the swap as standard (although some products you do pay) - which is best depends on how much you;re borrowing. A better rate with a fee might make financial sense if you have a large mortgage, say over £150k, whereas if you're just borrowing say £80k, usually a fee free option is the cheapest. Of course, each application is different and it also depends which lenders you're eligible for so you'll need to seek advice to see what's right for you, but this is often the case in our experience.
Go to your bank (not recommended).
Your bank only offers you their products, and with scores of lenders and literally thousands of mortgages to choose from it would be silly not to consider the other options, right?
Look at a comparison site or two (not for everyone).
You may find TV adverts offering you huge savings by using their compare the market systems, but be careful. These aren’t for advice – they don’t offer you the best mortgage for you, just a table of rates and deals. Also, they often these are geared around which product earns them the most cash – you’ll see rate mixed in with sponsored products and it becomes hard to establish which is actually the best deal. Not to mention they don’t always have the whole market.
Mortgages are dual priced with many lenders – they are either arranged directly with a lender or through a broker – each channel has different exclusive deals and offers, so to have a real scope of the whole market it would make sense to use a remortgage broker that searches them all.
Also, comparison tables give you absolutely no idea on which rates and deals you’ll be eligible for. Which mortgages can I get if I’m self employed? Which mortgages are available if I’ve had some late payments on my credit card? Can I get a mortgage if I’m retired or have benefit income? These instances are when a good broker is essential.
How to remortgage your house if you’ve been declined?
Remortgaging with bad credit:
- remortgage with late payments
- ccj remortgages
- default remortgages
- remortgage with arrears
- remortgage if bankrupt
In many cases, walking the streets going lender to lender to get a mortgage agreed will be fruitless and actually damaging to your credit file (see credit score info here). Finding a remortgage specialist that is expert in arranging the type of mortgage you’re looking for is important. Some brokers specialise in bad credit, others in self employed, others in expat, others in first time buyers etc etc… Luckily, we have all of them, and access to the whole market – so you can be sure if there’s a mortgage out there for you we’ll find it.
So, can I remortgage?
Below are the most frequently asked questions from our visitors and customers, have a read through and feel free to ask us more if there's something you want to know not covered.
How easy is it to remortgage?
Usually very easy (when compared to purchasing). You just find the product you want, apply, and the solicitors switch the lender. Most cases require a valuation, but some lenders have automated services for properties at lower loan to values that take away the need for a property that is clearly a safe bet. There’s no chain to worry about, no house to buy or sell, no contracts to exchange, fewer searches required (if any), and the general legal process f registering the charge with the new lender is far simpler. Typically a straightforward remortgage should take between 4-6 weeks from the date of application, although we have been known to arrange some far quicker – my record is 2 weeks!
Can I remortgage my house with bad credit?
Loads of people ask us ‘can I remortgage with bad credit', or 'can I remortgage with bad credit history', and aren’t sure of the difference that distinguished credit history and credit rating. The answer is yes, bas credit remortgages exist.
Credit history = a record of your conduct over the last 6 years,
Credit rating = the lenders interpretation of that history, and usually results in a pass score or fail.
Bad credit remortgages are possible, and depending on the severity of your credit issues and the loan to value you can still get top high street rates. If you are on a decent mortgage already and have more severe issues and a higher LTV, then the chances of getting a better rate are less, but if you’re looking to borrow more cash it might still be a better option than taking a personal loan or high rate credit card.
Can I remortgage to buy to let?
Yes. This may relate to either changing the mortgage on your existing property to rent it out, or remortgaging your existing property to raise cash to buy a buy to let, or maybe just remortgaging your existing buy to let for cash to consolidate debt or buy something. All are possible. The maximum loan to value for first time landlords is usually 75%, and for experienced landlords (with a current buy to let) its sometimes possible to get an 80% deal.
How much can I remortgage for?
As mentioned, this depends on the LTV. Most lenders allow remortgage up to 90%, so if your property is worth 100k, you can borrow 90k. You'll also need to prove affordability, which is usually maxed out at 5x your annual income.
Can I remortgage with no equity?
If you have no equity, then at the moment your current lender would be the only one you could remortgage with. It’s almost certain that they would only allow you to switch rate rather than borrow any additional money.
Can I remortgage to pay off debt?
Yes. MANY of our customers look to remortgage for debt consolidation, taking their debts from high rates, low terms, and high monthly payments, to low rates, longer terms, and much much more manageable monthly outgoings. It sounds cliché but if you have high amounts of debt and the right amount of equity, debt consolidation done in the right way can be a life changer.
When can I remortgage?
You can usually remortgage at anytime, but there may be penalties to pay as part of your deal if you do so within the fixed period, see below about remortgaging early. Having said this, legally it is usually a requirement for you to have owned the property for at least 6 months before you can remortgage - however this is waived in certain circumstances, for instance when a property is inhertied and a sibling wishes to remortgage to buy another sibling out.
Can I remortgage early?
‘Early’ we imagine, means before the end of your initial mortgage period, so if you had a 3 year fixed or tracker rate, and you want to remortgage at year 2 for example. Yes, this is absolutely possible, but you will need to factor in any early repayment charges (ERCs). Usually you’ll be charged a percentage of the loan for repaying early (unless you have a flexible mortgage with no ERCs), which varies product to product, but a 3 year deal is often 3% in year 1, 2% in years 2 and 3. So, a mortgage for 100k would cost you 2k to repay it all in year 2.
Can I get an interest only remortgage?
Despite almost all lenders changing their policy on interest only in the last 12 months, it is still possible (for how much longer we're not sure), but things might be very different now than when they were if you first took an interest only mortgage a couple of years ago or more. Now, because so many homeowners have reached the end of their mortgage term without means to repay their loan, the government have intervened - enforcing strict policy on interest only lending. As a result its no longer possible for you to say you'll overpay or downsize before the end of the term - you'll have to prove you have a repayment vehicle in place. The loan will also be restricted to 75% LTV with most lenders, but some limit to 50% and other (even high street) have even stopped lending on an interest only basis altogether. What is acceptable varies lender to lender, but generally you'll need:
|Repayment vehicles||Accepted by…||Notes|
|Existing endowment policy||Most lenders||Usually go on middle projected figure|
|Stocks/Shares ISA||Most lenders||Usually take 100% of balance|
|Savings in the bank||Few lenders||% of balance may be limited|
|Other investment bond||Most lenders||Usually take 100% of balance|
|Sale of this property||Few lenders||Usually required to have equity over £150k|
|Sale of another property||Most lenders||Usually ok, often limited to 75% LTV|
|Pension lump sum||Few lenders||Usually required to have a large lump sum|
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