Once you have decided to remortgage your home or property it is important to think through an plan your finances and next steps carefully. Remortgaging requires considerable effort and time but with carefully consideration and, by following our remortgage guides, you can save considerable sums on the amount you pay each month for your mortgage. It this suite of remortgage guides we take a methodical step-by-step walk through each of the factors that affects remortgaging and identify the key financial elements to help you make an informed decision as to which mortgage is right for your when remortgaging your home or property. This remortgage guide is designed to be used a little like a pamphlet, you can read through and, at the end of each remortgage guide, click next or previous to navigate through the mortgage information. You can also skip to specific remortgage guides / sections or use a remortgage calculator by selecting the relevant topic from the right hand menu. We will start by looking at the preparation phase, as with all good financial plans and decisions, the best remortgage plan starts with good financial preparation.
In order to get the best remortgage deal, you should start looking for new deals at least 2 to 3 months before your current deal is ending. As a golden rule, you should not restrict your options to the deals from your current lender; instead you should look at remortgage offers from all lenders. Once you have applied to the lender, they will make you an offer with an expiry date of between 30 to 90 days. The expiry date means the offer is valid till that date.
When you start looking for a remortgage deal, you will come across many interesting offers. You may be tempted to apply to many or all mortgage offers. Batch applying or 'application flooding' is a bad idea, did you know that with every application, your credit file is searched? Too many credit searches can leave a negative impression on prospective lenders. As a good benchmark, you should not apply to more than three lenders for a mortgage. If you want to explore more options, it may be worthwhile to use the services of a Mortgage Broker.
Securing a mortgage is far more difficult than it used to be. Prior to April 2014, you could get a mortgage of up to 5 times your income with very little difficulty if your finances were reasonably straight (or could be made to look that way). Those days are gone for most people. New mortgage lending rules by the Financial Conduct Authority (FCA), which came into effect in April 2014, requires lenders to perform detailed affordability checks on borrowers. The lenders take a detailed look at your income and your expenses and must make an informed decision with clear financial evidence and documented proof that you can afford to make the required monthly repayments after paying off all your monthly expenses. Also, in order to minimize their risk, lenders will assess your ability to repay at slightly higher interest rates as compared to the prevailing rates. So before applying for a remortgage, you should be confident of your eligibility as a rejection can have a negative impact on your credit score.
When compared to getting an initial mortgage, remortgaging can be more complex. There are two lenders involved, and you have to be prepared to deal with a lot of phone calls. You will also have to discuss the application with a solicitor, even if you are going for a remortgage with your existing lender.
Most lenders impose an early repayment charge if you switch to a new mortgage during the incentive rate period. You should check if your lender has any early repayment charges. If yes, you should remortgage only after the current deal ends. If you are remortgaging for any other reason other than going for a better deal, you should check if it's worth incurring the extra charges.
Apart from early repayment charges, you will have to be prepared to pay several other fees when taking a remortgage. These include application fees on the new mortgage and other costs, you can use our Mortgage Fees Calculator to produce a remortgage fee cost calculation. This will help you understand the fees involved and provide a cost benchmark of how those fees add up. You can also review our detailed Guide to Mortgage Fees. In addition, you have to pay solicitor's fees and survey fees. Yes, there are a lot of fees involved, the good news is that competition has slowly eliminated some mortgage fees, as you shop around you will discover that some mortgage lenders will waive or have dropped certain mortgage fees. Rightly so given both the amount of profit made on mortgages and the UK consumers financial support for the financial industries during the 2009 banking crisis.
Before applying for a remortgage, you should get to know the market value of your property. It has no doubt been at least two years since you bought or last remortgaged your house and prices have no doubt changed. Start looking on Rightmove (or other property websites) and at local estate agents to get an idea of what the housing market is doing locally. Look for similar properties near where you live and, if you wish you can ask a local estate agent or two to provide a free valuation. Estate agents are a good means of getting an accurate benchmark but this can result in nuisance calls to sell or rent your property and a measured increase in spam email and traditional post. Whatever you elect to do, the lender will perform their own independent valuation of your property to protect their interests.
It is incredibly unlikely that a Mortgage Lender will provide you with a loan at 100% of your property value. If you know the value of your property, you can calculate the Loan to Value (LTV) ratio of your property. LTV is the ratio of loan as a percentage of the property's total value. Note that the LTV for the remortgage may be different from your original mortgage, because the rates may have increased or decreased.
A lower LTV means that you require a lesser loan as a percentage of the property's market price, and thus you can get a better interest rate. The best remortgage deals typically start with a maximum LTV of between 60 and 75%. You can calculate the Loan to Value rate of your property using our Loan to Value Calculator
As discussed above, a lower LTV means you can access a better interest rate. The main LTV bands are 60%, 70%, 75%, 80%, 85%, 90%, and 95%. One way of lowering your LTV band is to use any savings you have to reduce the mortgage amount at the time of remortgaging. A few thousand pounds could drop your band which in turn can lower your interest rate. Another way of dropping your LTV is to get a higher valuation. While you cannot directly influence a valuer's decision, you can demonstrate key areas of value or features which are unique to your property, this will ensure the valuer understands the comparative value of your property and could lead to a higher property valuation. For example, you can share information on recent deals in your area for properties similar to your home but demonstrate that your property benefits from a new conservatory, extension, new windows etc. Producing a list of key features to provide to the valuer is the best approach in influencing this decision, ranting at them once they arrive won't help your cause, they typically have a timetable to work through and are focused on that rather than your words. Some will stop and chat through but if its in writing, they have it for reference later and comparison as they conduct the valuation.
You should check the accuracy of your credit score and spot any potential problems. If you have been regular with your monthly mortgage payments, it is likely your credit score must have improved from the time you applied for the first mortgage. Check the credit score in all three files - Equifax, Experian, and Callcredit - as your mortgage lender may choose any of these files for a check. Some things you need to check are whether all your accounts and repayments are accurately listed in the credit file or whether the file has any defaults. You should also check if your file has any unused credit cards, or are there any liabilities that you have cleared, but are still showing on the credit report.
Even if you have a perfect credit score, you should avoid certain financial transactions a few months before applying for a remortgage. For example, you should not make unnecessary heavy expenditures, or you should avoid getting into an overdraft. As detailed previously in this guide: Mortgage lenders will review your spending patterns and monthly financial status to assess your affordability.
You will need to complete the same amount of paperwork when applying for a remortgage as completed during the original mortgage. Many lenders want original bank statements and won't accept bank statements printed at home. You need to apply for these statements a few weeks in advance. In addition to bank statements for the previous three months, you will need to prepare the following documents:
Wow, you think you've found the UK best mortgage deal!! It's not unusual to find yourself considering remortgaging because you have seen a great mortgage deal but before you 'jump ship' it's a good to check with your existing lender if they can match the offer. If yes, this will save you from a lot of time, effort, and, more importantly, money. Remortgaging always comes at a cost (even if it saves money overall), if you can get or better the same mortgage offer with your existing mortgage lender it is likely to save you considerable sums on fees..
If you are applying for a remortgage, lenders will try to sell additional products like buildings insurance, mortgage payment protection insurance, content insurance, etc. It is possible that you may genuinely need some of these products, but don't mix it up with the remortgage process. If you have a need for such extras, you should independently compare the best deals in the market, and avoid getting influenced by the remortgage lender.
You can print this page and use the checklist as a reminder when going through your remortgage checks.
|Start researching early||▢|
|Limit your applications||▢|
|Check your eligibility||▢|
|Check for early repayment charges||▢|
|Arrange for funds to pay additional fees||▢|
|Find out the property's value||▢|
|Calculate your LTV ratio||▢|
|Lower your LTV band||▢|
|Confirm if your credit score is correct||▢|
|Manage your finances properly before a remortgage||▢|
|Prepare your paperwork||▢|
|Check if your lender can match the best offer||▢|
|Don't get lured by extras||▢|
While remortgaging may require some time and effort and can can seem like a chore, it can all be worthwhile and save you ££££'s if you secure the right mortgage deal.
Previous: Remortgage Guide Introduction