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Richard Campo explains the process of remortgaging.
What is remortgaging and how does it work?
Remortgaging is when you have a mortgage already and you’re looking to either move providers or change products.
Most mortgage products have a set end date. As this approaches you should start talking to your existing provider or looking elsewhere. The process is straightforward because there’s no legal work involved. It just involves going through the credit and affordability checks, so it’s much less complex than it was when you bought your home.
Remortgaging can save you tens of thousands of pounds and right now there’s a huge opportunity to get your loan paid off faster. Mortgage rates have dropped significantly, so if you took your mortgage out more than two years ago, you can save a lot. A lot of people are choosing to keep their mortgage payments the same, but because they are saving on rates they will pay the loan off a lot faster.
When is it a good time to remortgage?
Don’t leave it too late. Right now, in early 2022 everyone’s predicting interest rates will go up. So to take maximum advantage of that, we contact our clients six months out from their product ending.
We’re currently talking to people about their remortgages for June and July, because we can secure and lock in a new rate for you now. That will protect you if the Bank of England does raise rates as we expect.
Something else that we will explore is a product transfer, where you stay with your bank but take a different product. They will offer you a rate to stay around 90 days from your current product end date. We will compare the best rate available today with your lender against what else is out in the market to save you the most money.
When is remortgaging not a good idea?
Typically if your situation has changed, where perhaps your income has dropped or you have had credit problems, going to another provider isn’t preferable. In that case, you will probably stay with your existing bank.
Again, there’s that distinction around product transfer with your current bank versus remortgaging with a new lender. That’s also why we talk to people so far out, to explore their situation and recommend a good approach. Sometimes it is best to do nothing and not remortgage – but it’s good to be certain.
Are there any big remortgaging trends at the moment?
Last year’s stamp duty holiday meant that around one in 10 people in the UK moved home – but that’s very unusual. People are actually moving less these days, partly because stamp duty can be so painful, especially in London and the south east.
So a lot of people are choosing to stay where they are and remortgage to improve their home. They might take some money out of their property to pay for a loft conversion, rear extension or general modernisation. It’s popular because it’s easy.
Going back a few years, home improvements were the only opportunity for you to borrow more from a lender. If you spend a pound on a property it can increase its value by £2, so that’s why banks like it. They are happy to do it, as long as you can afford the extra borrowing.
Why remortgage at the end of a fixed rate deal? What happens if I don’t?
Let’s say for example your deal runs out on 31 January. As of 1 February you would roll on to the lender’s Standard Variable Rate (SVR). This is roughly between 3.5% and 4.5% – whereas a good mortgage rate is currently around 1.5%.
If you do nothing, then, your mortgage rate could double or more. Even a couple of months on the SVR is going to cost some people thousands of pounds. That’s why we pick up with you far in advance of that.
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How do I improve my chances of getting a good remortgage?
Pay your bills on time – that’s one of the best things you can do. Having said that, though, the last couple of years have been tough on people, so banks are more pragmatic than you might think. As long as you’ve made all your mortgage payments you should be able to remortgage at the moment.
Plus, your existing lender will usually let you have a new product with them without any underwriting. Either way, seek advice and explore your options. Don’t just do nothing, because there’s normally a better option out there for you.
What fees are associated with a remortgage?
The fees are typically much lighter for a remortgage against when you buy a home as there’s no legal work. Most banks offer a free remortgage service from their in-house lawyers.
Many lenders do charge an arrangement fee which could be anywhere between £1,000 to £2,000, but some don’t charge any fee whatsoever. Generally, the lower the interest rate, the higher the fee and vice versa. So we look at the total cost over the term of the product – we work out how much each deal will cost you over a two or a five-year period so that you can understand which is the most suitable deal.
We’ll explain whether it makes sense to pay any product or arrangement fees and recommend a good approach. The survey is normally taken care of for free too, so there are few upfront fees.
Is there anything else we need to consider when remortgaging?
One of my favourite economic terms is “inflation decreases debt in real terms.” People think that property prices are high right now and wonder whether remortgaging is a good idea or not. So it’s always good to look at the numbers.
In 1971 the average house price in the UK was £5,623 – and the reason I was looking back 40 years is that 40 years is the longest mortgage term. In 2021 the average UK house price was £268,349 – so over time as house prices increase, the risk to a bank reduces.
You can save a lot of money by remortgaging and managing the debt down because you’re always becoming less risky. The point I want to reiterate is that it’s good to work with a broker because we want you to have a nice big, debt free asset in the future. Your house could one day be worth 10 times what you paid for it – and that’s something to look forward to.
Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.