There are many reasons why a homeowner might decide to remortgage, from reducing their monthly payments at the end of the initial rates period, to releasing the equity from their property to unlock funds for those home improvements they’ve been planning.
Whatever the scenario, the first thing you should establish when setting out to negotiate a remortgage agreement is what the overall cost will be. And if you’re wondering which fees to expect and what taxes might be involved, you’ve come to the right place.
Here at Online Mortgage Advisor, customers often ask us how much it will cost to remortgage, and this article will help you find the answer.
At OMA, we often hear customers ask “do I need my own solicitor to remortgage my house?” The answer to this question is often a resounding yes - there needs to be an appointed conveyancer to manage the change of the legal charge form one lender to another. Most borrowers will have paid legal fees on their original mortgage, and the good news is that they’re typically lower for a remortgage deal as there’s less work involved.
Free legals Vs using your own solicitor to remortgage
Certain lenders offer free legal work as part of the remortgage deal and will appoint a solicitor who acts on your behalf as well as theirs, or alternatively you can instruct your own - just let the lender or your advisor know this is your preference from the start.
One thing to note is the service levels, as free legal teams working on behalf of certain lenders, are swamped. There’s many a borrower who opted for the free conveyancing and regretted it, either due to delays or unnecessary stress caused by using a firm who handle high volumes of cases and can come unstuck when they hit something outside of the norm.
Look for cashback if you want to use your own solicitor
At times, lenders offer cashback to replace the free legal work you would have had, which can go some way to covering most remortgage legal fees.
If you’re lender doesn’t offer free legal work or cashback, you’ll have to pay remortgage legal fees to the solicitor or conveyancer who is transferring your loan to a new provider. The remortgage lawyer will also arrange for you to pay any outstanding debt to the original lender.
How much should I expect to pay in remortgage legal fees?
As previously mentioned, a number of lenders will allow you to remortgage with no legal fees, but the downside here is that your loan provider will select the solicitor, which often means they go for the cheapest solution and they’re rarely the speediest around.
Whether you’re footing the bill through choice or necessity, the average cost of conveyancing fees for a remortgage is around £300, payable to your lender. These costs increase depending on the value of the property, its tenure (leasehold sometimes a supplement), and whether there are additional processes to be considered, such as a transfer of equity.
Some people pay extra, even if legal work is “free”
There are scenarios where the borrower’s circumstances mean there’s extra legal work involved, and therefore they don’t qualify for a free legal package. For instance, if you’re remortgaging following a break-up and need to buy out your ex-partner.
If you’re unsure whether to choose a remortgage lender with free legal fees or seek out a deal where it ultimately pays off to foot them yourself, get in touch and the whole-of-market advisors we work will discuss your application with you over the phone - they have access to panels of the top remortgage conveyancing firms around the UK, and can give you a price comparison between the cheapest and the best.
What other fees will I have to pay when remortgaging?
We’ve already established that there are circumstances where borrowers need to pay legal fees when remortgaging, as well as the fact that remortgage deals with free legal fees are available, but there’re other charges remortgage borrowers may be liable for. Such as…
Remortgage arrangement fees
Early repayment charges and exit fees
Remortgage arrangement fees
Many lenders will charge an arrangement fee to set up your remortgage and these can vary between providers. Some charge a fixed amount, others base the fee on a percentage of the loan, and certain lenders charge no arrangement fees at all. Whether it’s worth taking a fee free deal or a deal with a fee usually depends on the difference in rate and the amount you’re looking to borrow.
Remortgage deals with lower rates tend to come with a higher arrangement fees and borrowers who opt to pay up front, rather than adding it to their mortgage, will pay no interest on it. These fees are usually non-refundable, even if the loan agreement breaks down.
When deciding whether opt for a fee-free deal or one where they’re payable, you should calculate the tipping point, i.e. the point where paying a fee results in a lower overall cost.
The following deals may be available for a £150k loan over 25 years on a 2-year agreement…
5% fixed rate with £995 fee = approx. £600pm, = £14,400 + 995 = £15,395 total cost over 2 years
8% fixed with £0 fees = approx. £630pm, = £15,120 total cost over 2 years
The higher rate fee free deal here is better by approx. £275
Compare this to borrowing £500k on the same 25-year agreement…
5% fixed with £995 fee = approx. £2,000pm, = £48,995 total cost over 2 years
9% fixed with £0 fee = approx. £2,095pm, = £50,280 total cost over 2 years
The lower rate with £995 fee here is more favourable by approx. £1,285
Some lenders also charge a booking fee of between £100 and £200. This is paid up front, is often non-refundable and cannot usually be added to the mortgage.
If you’re seeking a remortgage deal from a new provider, the lender will insist on having the property valued before rubber-stamping the loan. In most cases, they will appoint their own valuer or surveyor and cover the costs themselves. Other lenders, and with certain products, the valuation will come at your expense - typically between £250 and £1,500, depending on the size and how much the property is worth.
Early repayment charges and exit fees
It’s often the case that property owners must foot early repayment charges if they leave their current deal before it finishes, and you should always check whether this applies to you before pursuing a new agreement, as this fee could negate any savings you stand to make by refinancing to more favourable rates.
Early repayment changes can vary depending on the terms of your mortgage. Sometimes it’s simply a percentage of the loan amount, but in other cases the figure you’re liable for decreases over time, becoming less as you approach the end of the agreement.
Borrowers on their lender’s standard variable rates don’t usually have to foot these charges, though they may have smaller nominal exit fees to settle (circa £50-200), which are administrative charges sometimes imposed by lenders to cover the cost of closing your account with them at any time
Check your paperwork and if you’re unsure which fees you will have to pay when remortgaging, get in touch and the whole-of-market advisors we work with will offer expert insight and pair you with the broker best equipped to handle your application.
Are remortgage fees tax deductible?
Tax on buy to let and investment property remortgages
Investors pursuing a remortgage for a buy to let property often get in touch with us to ask whether remortgage costs are tax deductible. Prior to the tax relief changes the UK government imposed on landlords last year, lenders fees and legal costs for remortgaging were fully tax deductible against rental profits in most cases.
Under the new system, though, revisions are being introduced in phases, and from 6th April 2020, tax relief on remortgage investments will be capped in accordance with the basic rate of income tax, which is 20% at the time of writing. Going forward, relief will be given as a reduction in tax liability rather than a reduction to taxable rental income.
The table below illustrates the changes over time…
Tax relief on finance cost
You should also be aware that finance fees cannot be deducted against capital gains, regardless of whether you initially claimed the expenses against your rental profits.
Tax for ltd company buy to let property
There are different tax rules for limited companies that run as investment vehicles for buy to let property. Landlords who are set up this way will not pay income tax as an individual, but corporation tax, which was reduced to 18% in April this year.
While lenders’ stress testing can be more favourable for ltd companies - rental income usually has to cover 125% of the mortgage payments at 5.5% or the initial rate product rate plus 1.55%, versus 145% for those who operate in their own name - but there are other tax implications landlords should consider before setting up as one.
Once your rental income has been paid into the ltd company, profits need to be distributed and this is usually done via dividends. The first £2,000 you withdraw is tax free, but the rate rises the more you take out. Your property will also be subject to corporation tax when the time comes to sell it, while those who bought in their own name will pay capital gains tax.
Moreover, changes brought in by the UK government in the 2017 Budget mean that portfolio landlords will have their properties assessed as a whole, rather than on their individual merits. The ltd company tax efficiencies still apply, but if one property is under-performing, this will have an impact on the underwriting of the entire portfolio.
Will I pay stamp duty and Land Registry fees when I remortgage?
The Land Registry will charge a fee to register your new mortgage on the property, and this can fall anywhere between £20 and £910 depending on the value of your home.
Stamp Duty Land Tax (SDLT), meanwhile, is only payable if there is a need to transfer the legal title of your home as part of the remortgage. This is common practise if you’re handing ownership of the property to a family member or moving in with a partner.
In the case of an SDLT transfer of equity and remortgage application, there are a number of scenarios where you might have to pay stamp duty, and they include…
When transferring a share of the property to a spouse after marriage, entering a civil partnership or moving in together
When transferring land or a property to or from a company
When taking on a larger share of a property that was previously under joint ownership
There are also situations where you will be exempt from paying stamp duty on a remortgage, and they include…
If two or more people jointly own the property and divide it up physically and equally
When transferring an interest in land or a property following a court order or agreement in the wake of a divorce or legal separation
Will I pay capital gains tax if I remortgage my property?
In short, no! If you’re simply seeking to remortgage your home, no capital gains tax will be due during the transaction. Capital gains tax is only payable upon the sale of the property.
Speak to a remortgage expert today
If you like anything in this article or you’d like to know more, call us 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.
The information 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.
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.
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes.
The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete's presence in the industry as the 'go-to' for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!
Read more about Pete here...
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