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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 9th September 2019 *

Remortgaging explained

Remortgaging. What does it mean, and how exactly does it work? 

Without having had one before, many of our experiences stop at the monopoly board. While the concept of remortgaging is similar to a more traditional mortgage, the process is unfortunately not so straightforward.

There are many remortgage options available to cater to a variety of needs, which we look at in this article. We'll be covering:

  • Remortgage definition
  • How to remortgage in 4 easy steps
  • What to do if you’ve been declined for a remortgage
  • Remortgage FAQ

To get the ball rolling on your remortgage application, call us on 0808 189 2301 or make an enquiry here. We'll then put you in touch with an expert mortgage broker who can work with you in order to find your perfect deal.

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What is a remortgage?

To put it simply, 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 want to change lenders for a better deal or to get more money—either way, it's known as a remortgage.

Standard mortgage swap

There are two 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.

Remortgage type  Most lenders Specialist lenders
Debt consolidation 80% 90%
Home improvements 80% 90%
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%


Why remortgage?

There's many reasons why a homeowner would want to remortgage. Whether raising more cash or changing lender, the benefits can be massive.

By remortgaging, you could save money on interest paid, fix your rate against future increases, change your term and make monthly payments more affordable; there's lots 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 in their property 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 calculate your 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 to work out what you can borrow:

Step 3) Decide what type of mortgage you want

  • For fixed vs tracker, or repayment vs interest-only, visit our remortgage advice page for more information 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 recommended whole-of-market remortgage broker
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 could 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 included in the swap as standard (although some products you do pay). Which is best depends on how much you're wanting to borrow.

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 on 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 plenty of lenders and literally thousands of mortgages to choose from, it's definitely worth thinking about looking elsewhere for a potentially better deal. 

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, these are often geared around which product earns them the most cash, so you’ll see rates combined 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 and 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 depending on your circumstances. Factors such as being self-employed, having bad credit or being retired can affect the rates offered to you. These instances are when a good broker is essential.


How to remortgage your house if you’ve been declined

These are the steps you should follow if you've been declined for a remortgage:

  1. Take note of why the lender turned down your application. This could be because of your credit history or affordability, among other reasons.
  2. Make an enquiry to speak to a whole-of-market broker.
  3. Explain to your broker what kind of remortgage you're looking for and the reason you were declined previously.
  4. Sit back and let them search the entire market on your behalf for the lender who is best positioned to help you out where others couldn't.

In many cases, walking the streets going lender to lender to get a mortgage agreed will be fruitless and could even affect your credit rating.

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.

Luckily, we work with experts who are knowledgeable in these niches, so they can find the best mortgage for your circumstances. Message us here to get started.


Can I remortgage? Our FAQ section will shed light on this

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 that's not been covered.


I own a house outright. Can I remortgage?

Yes. If you own a property outright, your chances of borrowing against it are high, provided you meet the lender's eligibility and affordability requirements.

A remortgage under these circumstances is not dissimilar to applying for a mortgage product from scratch, although you might find that you're in a stronger position since the equity in your home can serve as your deposit.

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-value ratios 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.


Can I remortgage my house with bad credit?

If you're wondering whether you can remortgage with bad credit or a bad credit history, the answer is yes, depending on your circumstances. There's also a distinction between your credit history and rating to bear in mind, which is:

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.

However, 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. If you have equity in your home, you could even look at taking out a second-charge loan.

For the best advice on remortgaging with poor or no credit, speak with an advisor. They'll be able to look at your situation to help you achieve your financial goals.


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 purchase a buy-to-let. Or even just remortgaging your existing buy-to-let for cash to consolidate debt or to make a purchase. 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) it's sometimes possible to get an 80% LTV deal.

We can put you in touch with a broker who specialises in BTL remortgaging. Make an enquiry to get started.


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 4.5x 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.

The total cost will depend on your situation, how long you secure the debt for, the mortgage rate you get and the interest you're paying. This could mean that you end up paying more over time.

Think carefully before securing other debts against your home.


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 the section 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 inherited and a sibling wishes to remortgage to buy another sibling out.

For more information, get in touch and we'll connect you with an expert advisor.


Can I remortgage early?

If you want to remortgage before the end of your initial mortgage period then yes, this is absolutely possible, but you will need to factor in any early repayment charges (ERCs). For example, if you had a 3 year fixed or tracker rate, and you want to remortgage at year 2, you may incur some charges (though this will vary from lender to lender).

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), though 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 and enforced strict policy on interest-only lending.

As a result, it's no longer possible for you to say you'll overpay or downsize before the end of the term . Instead, 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 stree) have even stopped lending on an interest-only basis altogether. What is acceptable varies lender to lender, but generally you'll need:

Repayment method Accepted by… Criteria
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


If you're ready to find out what remortgage deals you could get, call us on 0808 189 2301 or make an enquiry here. We'll then put you in touch with an expert who can offer free, impartial advice tailored to your circumstances.


 

Updated: 9th September 2019
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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