Guide to Remortgaging

There are thousands of mortgages available, in August 2021 there were 4,660 products available*. With such a high number of products available, it can be hard to know what’s best for you and what it all means. Our guide will provide you with information about remortgaging to help determine the best route for you and your circumstances. People who are looking to remortgage will already have a mortgage and will be looking to move to another lender, switch their current deal with their current lender, release more equity from their house or if you own the house outright and you’re looking to borrow money against it.

Why Should I Remortgage?

Because you’re looking to save on your monthly outgoings

Your mortgage payments are most likely to be your most expensive monthly outgoing and more often than not, you might be able to remortgage your mortgage to a cheaper deal. Remortgaging means moving your mortgage from one lender to another or switching products with your existing lender to get yourself a better deal. Once your introductory offer has ended, you’ll be on the lender’s Standard Variable Rate (SVR). However it’s very unlikely that this is the cheapest option, so remortgaging is worth looking at. When it comes to remortgaging, you may have to pay an exit fee to leave your current lender and maybe even an early repayment charge. This shouldn’t put you off from remortgaging as the savings are more than likely to be a lot higher than the fees.

Because your mortgage no longer fits for purpose

Maybe you’ve had a pay rise or you’ve inherited some money so you want to make extra payments to your mortgage but your current deal doesn’t let you. Whilst on the other hand, you might need to miss a payment because you’re changing jobs or going back into education. There are mortgage products out there that allow you to take mortgage payment holidays. Flexibility in your mortgage is available however, expect to pay for flexible features with a slightly higher interest rate.

Alternatively, if you’re looking to pay more towards your mortgage, a remortgage with a shorter term or higher repayment amounts per month is less likely to have the same terms of a flexibility mortgage product.

Because you’re looking to borrow more

You may be thinking about borrowing more money to make home improvements or to pay off any debt*, remortgaging is one way of doing that.

There are two ways of remortgaging:

Perhaps your current lender has said no to lending you extra money (a further advance) or the term aren’t very good, remortgaging to a new lender might allow you to raise capital cheaply at lower rates.

You can release equity from your mortgage and remortgage with your current lender to another product that they have available.

*Think carefully before securing debt against your home as you may end up paying more in the long term.

Who shouldn’t remortgage?

The ones who are already on a great deal

The fortunate ones who are already on a great deal will have no need to switch onto another mortgage product. Maybe sometime in the future, it might be worth switching mortgages products like when your current mortgage product is due to end.

The ones who are locked in with penalties

The unfortunate ones, maybe on a poor deal but your lender has locked you in with high early repayment charges. With such high early repayment charges, it is most likely not worth moving before your current deal is due to end as you’ll be paying more than you’re actually saving. So the best thing we think you can do is move as soon as you can and have a new product ready to go for as soon as it has ended.

The ones who own 10% or less of their property

If you own less than 10% of your property outright, you will find it difficult to get a better mortgage deal than you currently do. While 95% mortgages are increasingly common, they’re aimed towards purchasing than remortgaging and whilst rates for 95% mortgages are improving, they’re not the cheapest. So unless you’re on a very high mortgage rate now, it might be best to aim and get below the 90% threshold and then have a look at remortgaging.

The ones with a small mortgage

Once your mortgage falls below a certain amount, it may not be worth switching lenders because you are less likely to make a saving if the fees are high. In some cases, some lenders won’t take on mortgages below £25,000. The smaller your mortgage, the bigger the effect any fees you pay to remortgage will have. It might be best to work out the maths first as you might be better off on a higher interest rate to avoid the fees. Borrowers who are very close to the end of their mortgage term may also find it prohibitively expensive to switch lenders.

The ones with a bad credit history

If you have a bad credit history, caused by missing a few credit card, loan, mortgage or utility bill payments then you may find it harder to remortgage. This doesn’t mean that you won’t be able to remortgage, it means that you will have less choice compared to someone with a good credit history. It might be a good idea to start improving your credit score a few months before you start looking to remortgage, that way you will have a wider variety of products available.

Who shouldn’t remortgage?

The ones who are already on a great deal

The fortunate ones who are already on a great deal will have no need to switch onto another mortgage product. Maybe sometime in the future, it might be worth switching mortgages products like when your current mortgage product is due to end.

The ones who are locked in with penalties

The unfortunate ones, maybe on a poor deal but your lender has locked you in with high early repayment charges. With such high early repayment charges, it is most likely not worth moving before your current deal is due to end as you’ll be paying more than you’re actually saving. So the best thing we think you can do is move as soon as you can and have a new product ready to go for as soon as it has ended.

The ones who own 10% or less of their property

If you own less than 10% of your property outright, you will find it difficult to get a better mortgage deal than you currently do. While 95% mortgages are increasingly common, they’re aimed towards purchasing than remortgaging and whilst rates for 95% mortgages are improving, they’re not the cheapest. So unless you’re on a very high mortgage rate now, it might be best to aim and get below the 90% threshold and then have a look at remortgaging.

The ones with a small mortgage

Once your mortgage falls below a certain amount, it may not be worth switching lenders because you are less likely to make a saving if the fees are high. In some cases, some lenders won’t take on mortgages below £25,000. The smaller your mortgage, the bigger the effect any fees you pay to remortgage will have. It might be best to work out the maths first as you might be better off on a higher interest rate to avoid the fees. Borrowers who are very close to the end of their mortgage term may also find it prohibitively expensive to switch lenders.

The ones with a bad credit history

If you have a bad credit history, caused by missing a few credit card, loan, mortgage or utility bill payments then you may find it harder to remortgage. This doesn’t mean that you won’t be able to remortgage, it means that you will have less choice compared to someone with a good credit history. It might be a good idea to start improving your credit score a few months before you start looking to remortgage, that way you will have a wider variety of products available.

Get ready to remortgage

Before you start looking at remortgages, there are three things to check on your current mortgage:

Will you be paying an early repayment charge?

Most mortgages have an early repayment charge during the initial special discount period and if you decide to remortgage, you’ll trigger the charge and it can be in the thousands of pounds. So before you start the process of remortgaing, you need to know:

• Is there a charge?
• How much is it?
• What date does it apply until?

Once you know this information, you will be able to work out if it’s worth ditching your current mortgage deal earlier and paying the charge. Alternatively, you can avoid the charge by remortgaging the next working day after the early repayment charge ends

Will you be paying an exit fee?

Most mortgages will have an administration fee for releasing the deeds to your solicitor, typically ranging between £50- £200 but it can be higher. The lender should only charge you these kinds of fees if you were informed about them when you took out the mortgage. This will be stated on the offer document and the key fact illustration.

How much do you owe to your current lender?

Without this information, you won’t know how much you’ll need to remortgage. Don’t just estimate a figure, it’s best to either ring your lender or check your online account if you have one, which will state how much you have left. If you were to guess, this could mean you end up with a shortfall or taking a higher remortgage which produces an unnecessary surplus which will cost more over the long term to pay back.

Increase your chances of getting the best mortgage deal

Improve your credit score

This isn’t a quick fix, some of the things that you can do will need to be done months before applying to ensure the groundwork is done in good time and to decrease your risk of being rejected. Read our full guide on how you can improve your credit score. 

Proving your affordability

There was a time when lenders would check your credit score and if it looks good, they would multiple your income by four to figure out your credit score. However, now there are a lot more details to be checked and if you want to increase your chances of being accepted, you will need to prove your affordability.

An extra £100 can increase your chances of being accepted

Reducing the amount you need to borrow by just 0.1% can increase your chances of being accepted by a lender or reduce the amount of documentation the lender would like to see

Avoid payday loans

Some lenders will reject applicants who have payday loans because it indicates poor money management and also because of their extremely high interest rates.

Do you have any savings that you could use?

At every 5% Loan to Value (LTV) threshold, from 95% to 60%, deals tend to get better. For example, if you have a £200,000 home that you wish to get a £122,000 remortgage – that equals to a 61% LTV. However, if you have £2,000 in savings that you could use, meaning that you’re now looking at a £120,000 remortgage – that equals 60% LTV. Additionally, your savings have gone towards paying your mortgage off.

Remortgaging if you’re self employed

If you’re self employed or someone who may struggle to prove their long term income because you’ve worked aboard, on a temporary contract or your business has been adversely affected by the pandemic, then remortgaging can be tough but that doesn’t mean it’s not possible.

What documents will you need to provide for a remortgage?

Business Accounts – You want to be able to show preferably two to three years of accounts, usually signed off by a chartered or certified accountant.

Tax Returns – If you’re unable to show business accounts, you might be asked to provide two years of tax calculations and tax year overview forms.

Someone who is self employed will be assessed on profits, not turnover and if you have chosen to minimise declared profits to pay less tax (legally), then you could find it harder to get the remortgage deal that you want.

It’s most likely to be easier for an established business but for those who have recently started working for themselves, it can be a difficult challenge. Alternatively, if your partner is self employed, their income may not help you remortgage if it can’t be proved.

If you think remortgaging is going to be a complex process, then using a mortgage broker will help make the process easier. They will be highly knowledgeable on mortgage lenders’ requirements and what documentation they will be wanting as evidence.

I’m looking to move house, is that a remortgage?

If you’re looking to move house, you don’t need a remortgage. you will need to either:

• Take your current mortgage product to the new house
• Get a new ‘home mover’ mortgage

I want to take my current mortgage product to a new house?

If that is the case, you will need to see if your current mortgage is ‘portable’ and you will find this out by checking your mortgage paperwork or ringing your lender. If its portable, you might be able to take your existing deal to a new property. You would have to pay off the mortgage on your current property by either selling it or replacing it with a buy to let mortgage. Example: you’re one year into a three year fixed rate when you sell your current home and you can take your fixed rate to your new property for the remaining two years.

How much will the lender let me port?

Your lender is likely to only let you port the amount that you currently owe on your current deal. If the new property is more expensive and you need to borrow more, you’ll have to take the extra out on a different mortgage product or sometimes the lender will lend you the rest on a Standard Variable Rate.

My mortgage is portable, can I definitely take it with me? Unfortunately no, just because your mortgage has this feature, it doesn’t mean your lender will allow you to use it. The lender will check that you’re still creditworthy and they will want to check your new potential property to see if it’s good security for the mortgage.

But what if I don’t or can’t port my current mortgage?

Going back to our first points, you will need a new homemover mortgage. This means that you will need to pay off your current mortgage on your current home, usually with the proceeds from selling your house or funds from a buy to let mortgage. Then you need to get a new mortgage for your new home.

What is the advantage of porting your mortgage?

You get to keep the rate that you currently have and get to avoid any early repayment charges if there is any.

Why choose to use a mortgage broker when remortgaging?

Finding a new mortgage can be a daunting task, there is plenty of options available, industry jargon to understand and lots of paperwork to submit. Using a mortgage broker like ourselves, can make the process less stressful for you and we aim to find the best deal for you and your circumstances.

A broker should be able to quickly source a mortgage product that fits your credit history, affordability, speak to lenders on your behalf and submit paperwork in the correct format for lenders which can speed the process up. Additionally, there are some lenders who will only work with brokers and offer exclusive deals therefore, individuals will not be able to access them