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Remortgage FAQ

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By Pete Mugleston   Mortgage Advisor

Last updated: 21st August 2018 *

If you have a mortgage on a house or a flat, you could well be in a position to grab yourself a cheaper deal with lower monthly repayments. Or land yourself the opportunity to raise money for home improvements or to pay off any debts. In other words, you could remortgage.

We’ve helped hundreds of people remortgage, so here’s a brief FAQ on how to remortgage for a range of different circumstances.

We’ll cover such topics as –

Is it better to get a loan or a remortgage?

If you want to remortgage and borrow more money, you will need to find a lender who is prepared to lend enough to pay off your existing mortgage plus the sum you want to raise. This could mean making higher monthly repayments over the full term of the remortgage, typically 25 years.

Your repayments will be determined by how much you are borrowing in relation to the value of your property (i.e. the Loan to Value (LTV)). Lower LTV mortgages carry lower interest rates.

What fees might I have to pay?

There are fees you will need to consider when remortgaging. Administrative fees, described by lenders otherwise as Product Fees, Lender Fees, Arrangement Fees, or Booking Fees, can be substantial.

You should average out these admin fees over the period of the lower rate deal offered – typically 2, 3 or 5 years as fixed, tracker or discount rates – before the interest rate reverts to the lender’s Standard Variable Rate (SVR). So, for instance, if a lender’s Admin Fee is £2,400 for a 2 year fixed rate remortgage product, you’ll be paying effectively £100 per month on top of your monthly repayments.

When considering a remortgage, check the details of your existing mortgage. Many mortgage products will include Early Redemption Charges (ERC), charged as a percentage of the loan. They are usually applied over the mortgage’s favourable initial lower interest rate periods (e.g. the first two years of a 2 year fixed rate mortgage), employed as a disincentive for the borrower to switch mortgages over the mortgage’s lower interest rate period. These charges can add up to thousands of pounds.

Your existing lender will also commonly charge you Exit Fees when you leave your mortgage. The Exit Fees comprise a collection of small fees that lenders have different names for, such as Deeds Release Fees, Sealing Fees, and Closure Fees.

How will interest rates affect my decision?

The best interest rates can be had when a mortgage is in its initial fixed, discount or tracker term (typically in the first 2 to 5 years). Thereafter, the rate will revert to a higher SVR that is set by the lender. The best time to remortgage, therefore, is just before the rate reverts. 14 weeks before reversion is considered a good time to start looking around for a better deal.

You might look to engage the services of one of the expert advisors we work with. They have an in-depth knowledge of credit score criteria and affordability issues, which they can use to match you with a broker with the expertise to suit your circumstances, such as if you’ve had bad credit or not.

You may find that your lender discourages overpayment of your repayments, which would otherwise serve you well in reducing your mortgage.

Can I use my remortgage to raise equity?

A remortgage can be an excellent tool if you’re looking to pay off a substantial chunk of your mortgage without incurring overpayment penalties.

You may have received a pay rise or inherited money, which you would like to invest in your home. By remortgaging, you could add that money to your deposit to lower your LTV in taking out a lower interest mortgage. Check how much the lower repayments stand up against any ERC charges you might incur and any Exit Fees.

The alternative to remortgaging with a different lender is to take out a further advance from your existing lender. This might be the way to go if you’re already on a good rate, or the cost of terminating your existing mortgage makes a switch economically unviable. Just be aware that the interest rate you are charged on the additional borrowing could be different to your existing mortgage rate.

And as with any kind of remortgaging, remember you are taking out a loan against the security of your home (the proportion of your property you own in bricks and mortar after you’ve subtracted the mortgage loan from your property value). So be mindful of the risk you take when remortgaging.

Are there alternatives to remortgaging

People often ask, ‘Can you remortgage if you have a secured loan?’ You might consider taking out a loan instead of remortgaging if your mortgage debt is low. Below £50,000, you may well find the savings minimal once you’ve factored in fees you incur breaking from your existing mortgage. Some lenders won’t consider remortgages below £25,000.

Consider remortgage alternatives. Secured loan or remortgage? You could consider remortgaging with a secured loan, which again means borrowing against the security of your home. In the case of an unsecured loan this will not be a problem, but will cost you more in repayments on higher interest rates.

You can apply for an unsecured loan with a bank or other lender. Often the loan period is 5 years and typically at a fixed rate, which means you know exactly what your repayments will be. Hence with a fixed rate unsecured loan you can plan your budget. Make sure you’re able to meet the higher repayments.

Are credit cards a viable option to remortgaging?

If you’re borrowing a smaller sum, say for less costly home improvements, you might consider other remortgage alternatives. You could use a credit card. You can look to lower interest rate deals and take advantage of 0% introductory rates. A credit card will also give you some protection, means to claim back money, should you have any breach of contract issues with your builder. Make sure you can make at least the minimum repayments on your credit card balance each month.

I have some savings. Could I use those instead of a remortgage?

Savings offer the alternative to borrowing. You won’t have to pay interest on a loan, but equally putting money into savings is not such an attractive propositions when savings account interest rates are very low. And then there’s always the temptation to dip into savings to pay for other things. You might consider putting your money into a savings account with higher interest rates where access to your money is restricted.

Could I use a second charge mortgage?

Many people know this type of loan as a second mortgage, secured loan, home owners loan etc. and it has some distinct advantages for those looking to release some equity from a ‘buy to let’ property that they may have.

A second charge mortgage is a loan secured against the equity in your property, essentially giving you two mortgages.

You (or your broker) apply to the second charge lender as you would for any buy to let home loan mortgage. The lender will then need to value the property as suitable security and assess your application in terms of affordability, credit history, etc.

Almost any property-owning individual can apply to remortgage with a second charge, so long as they have the equity (and income) required. It’s even possible to have 3rd and 4th charge mortgages if your situation warrants it.

What if my house value increases?

It’s quite possible that the value of your property has increased since you first took out a mortgage on it. If that’s the case, then you will have more equity in your home.

It’s possible to use this increased equity to remortgage and borrow money at a cheaper rate or reduce your monthly repayments. That’s because the increase in the value of your home set against the sum total you want to borrow (i.e. what you are repaying now plus the sum you want to borrow) could make you eligible for a remortgage with a lower LTV.

To remortgage on the back of a house value increase, you will need to get your property valued to work out how much equity you have in it. This will in turn determine how much more you can borrow. You could ask your lender to do a valuation, though this will come with a fee.

If you’re remortgaging to take advantage of when your house value has increased, you might find a lender who offers a free valuation. And don’t forget, when you’re weighing up your options, to factor in any Exit Fees and ERCs on terminating your existing mortgage; and the administration fees on the remortgage.

Remortgaging to anticipate a house price increase, that will continue to rise is a risky strategy. You can’t assume that in justifying taking out a bigger remortgage than you can afford right now. There’s no guarantee that property prices will always increase.

What’s involved in remortgaging A Right to Buy property?

The Right to Buy scheme helps eligible council and housing association tenants in England to buy their home at a discount.

Under the scheme, there is usually a pre-emption period, which stipulates that the tenant will have to pay back the discount to the council if they sell the property within 5 years of purchase.

People ask how does this impact on a Right to Buy remortgage? It doesn’t mean that the tenant can’t switch within the initial 5 years’ pre-emption period and remortgage to take advantage of lower interest rates. You won’t be penalised for shopping around to find a better deal.

Is It better to remortgage with the same lender?

We are often asked, ‘Is it easier to remortgage with the same lender?’ You can of course move to a better rate with your existing lender. Remortgaging with the same lender is called a Product Transfer. There are advantages to doing this as you won’t usually require a solicitor to do any additional legal work. Hence you will save on legal fees.

Remortgage with the same lender and it’s likely you won’t be subjected to further affordability assessments or credit checks either. Unless that is you are borrowing extra money or making major changes to your mortgage. This can be an advantage if your household income has decreased, your expenses have increased, or you have become self-employed since you took out your original mortgage. Some lenders will require updated details on your circumstances, if you’re planning to remortgage with the same lender, so it’s best to check your mortgage provider’s policy.

A Product Transfer makes sense if by remortgaging with a different lender exposes you to ERCs. You would also avoid paying any Exit Fees charged when terminating your existing mortgage.

What about Remortgaging with a different lender

Remortgaging with a different lender gives you a greater opportunity of finding a better deal than choosing between a restrictive few offered by your current lender. The more equity you have in your home and the cleaner your credit, the lower your interest rate will be on your remortgage, potentially saving you thousands of pounds.

Lenders put out competitive rates to attract remortgagers. They recognise the discouraging costs of switching. And so some will offer incentives, such as free legal work and valuation reports.

Remortgaging with a different lender helps you use your money more effectively if you want to pay off a substantial chunk of your mortgage. It’s common for lenders to charge borrowers for overpayments. So, if you’ve earned a sizeable bonus or inherited money, you could instead remortgage and use the money to shore up your deposit and take advantage of a remortgage in a lower LTV bracket with a lower interest rate.

Can you remortgage if you’re on Maternity Leave?

It is possible to remortgage while on maternity leave. Most lenders will base affordability on your maternity leave income, which will be lower than your normal annual salary. They will then apply income multiples on your lower income to determine the maximum amount you can borrow.

If remortgaging when on maternity leave, there are some lenders who will base affordability on your full, normal salary if you can confirm that you will return to work within three months of your mortgage application and the date of your return. Also, on the condition that your income will then be at the same level or higher than when you took your maternity leave.

If remortgaging while pregnant, you will need to disclose this to your lender that you are planning maternity leave on applying for a remortgage. This satisfies the condition in the application that you notify the lender of a material change to your financial circumstances. Failure to disclose is considered fraud. Some lenders do not lend to borrowers on maternity leave.

Remortgaging whilst on maternity leave is possible if you are self-employed. It depends on what impact your absence will have on the business. Mortgage companies are willing to lend if you have employees who can keep the business income stable while you are on leave.

If you have bad credit and you’re remortgaging while on maternity leave, it will be more difficult to switch mortgage. Chances of success depend on the severity of the credit issues and how recently those issues such as bankruptcy, mortgage arrears or repossessions occurred.

You may be able to remortgage up to 85% LTV if you go through a mortgage broker. Lenders typically like to deal with brokers who can ensure applications are completed adequately and stand a greater chance of being accepted. You might look to engage the services of one of the specialists we work with.

Can I remortgage if I’m a UK expat?

Lenders will view your borrowing as higher risk if you’re remortgaging as an expat. This is because it is more difficult for the lender to establish a borrower’s financial stability when they are living and working abroad.

If your primary income is earned overseas, the lender may have difficulty identifying your employer and getting access to relevant information such as your credit history in order to process your application.

They prefer, if you’re remortgaging from abroad, that you are employed by an international company in certain countries. If you’re self-employed, they may be concerned about the sustainability of your business. Whether employed or self-employed, the size of your income will be subject to fluctuating exchange rates.

Inform your lender if you change jobs while overseas. Some lender have restrictions in place governing a UK expat remortgage, such as the type of employment they will accept, even if the pay in your new job is higher than in your previous one.

It’s a good idea to open a bank account and to order a credit card in the UK if you don’t already have them. Check with the bank that they will allow the account to remain open while you’re overseas.

Lenders require that you have a traceable UK address for the purposes of correspondence. You can propose the address of a close family member or your parents, somebody you can trust to pass on your mail.

You may need to pay a little extra in interest rates for an UK expat remortgage as a consequence of being a higher risk borrower.

Can expats access Buy To Let remortgages?

Expats continue to capitalise on the rental market in the UK. Borrowers might want an expat Buy To Let remortgage to either get a better deal after they have left the UK; to release equity in an existing property in the UK in order to purchase another investment property; or release equity to buy a property overseas.

There are lenders prepared to lend on an expat Buy To Let remortgage. The lender will require a relatively larger deposit to protect themselves against any uncertainty in making income from the rent. As an expat, your chances of securing a BTL remortgage will be enhanced if you have been employed abroad over a longer period of time.

What is A Transfer Of Equity remortgage?

A Transfer of Equity is a change in legal ownership of a property. This may happen when one person is added to another’s mortgage, say when a couple decide to marry or cohabit, or alternatively when one person is released from the mortgage upon a partnership breaking down.

The Transfer of Equity can signal a good opportunity to remortgage and take advantage of a mortgage with a lower interest rate. Plus there is the opportunity to raise additional capital.

What’s involved in a joint remortgage?

You will have access to substantial borrowing collectively obtaining funds via a joint remortgage.

In most cases, a lender will require a credit check of all applicants taking out a joint remortgage. Each is checked for any credit issues they may have had with regards to IVAs, bankruptcy or mortgage arrears. Bad credit may restrict the choice of remortgage deals available to you.

Although the lender needs to be satisfied that the joint remortgage can be repaid, they are not interested in the proportions each of the applicants pay, just as long as the total repayments are met.

How can I raise A lump sum by remortgaging?

Homeowners can remortgage and raise a cash lump sum by borrowing against the equity in their home. Often the remortgage lump sum is used to pay for home improvements, to buy a second property or start a new business.

If you do raise a remortgage lump sum and end up borrowing more as a consequence, consider how you will repay the loan over the lifetime of your new mortgage. And of course you need to factor in all the fees involved in leaving your current mortgage and arranging a remortgage. They could eat into the equity in your home.

What are Surplus Funds with regards to a remortgage?

Any money you receive upon completion of your existing mortgage is called a ‘surplus of funds’. Your solicitor will oversee the payment and the transfer of funds.

What about lifetime tracker remortgages?

You might want to consider a lifetime tracker remortgage. Some people like the fact that a tracker mortgage follows the Bank of England base rate (BBR) and not the lender’s SVR. While the BBR is very low, tracker rates are too. This could change depending on how the economy fares in future. A lender, on the other hand, may change its SVR whenever it chooses for its own commercial purposes.

It’s worth checking out the lifetime tracker remortgage market. Lifetime tracker remortgages are simpler for lenders to design. As a consequence, they carry lower fees than fixed, discount or capped rate mortgages.

Am I protected if I remortgage my home?

If you fail to keep up payments, your home could be repossessed. But at least it’s reassuring to know that if you suffer any losses or receive a poor service from your mortgage lender that you are protected by the UK’s financial ombudsman service, the Financial Conduct Authority (FCA).

Talk to an expert advisor on remortgaging today

If you like anything in this article or you’d like to know more, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances.  – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 21st August 2018
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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