Remortgage, the process of switching to a new mortgage from a different lender, can be a money-saving endeavor. In today’s volatile mortgage market, where interest rates fluctuate, taking the right steps can save you thousands in the long run. This guide provides valuable tips to navigate the remortgaging process effectively.
Plan to remortgage Early to Avoid the Standard Variable Rate (SVR)
Timing Is Crucial
If your current mortgage deal is coming to an end, you may face a significant hike in interest rates, as lenders often transition borrowers to their more expensive standard variable rates (SVRs), currently around 7.5% to 8.5%. To avoid this, plan ahead and start the remortgage process at least six months before your current deal expires.
Secure a remortgage ‘Insurance Rate’
Lock in a Favorable Rate
In the ever-changing mortgage market, it’s challenging to predict if today’s rates will remain competitive in the future. To mitigate this risk, consider securing an “insurance rate” by locking in a new mortgage offer six months before you need it to start. This allows you to safeguard a lower rate if interest rates rise while giving you the flexibility to explore better deals if rates fall.
Options for Locking In a Rate
Product Transfer or Remortgage
You have two primary options for locking in a rate: a product transfer with your existing lender or a remortgage to a new lender. Many may wonder if is it beneficial to switch but we will look at the key points to consider when comparing.
Product Transfer Simplified
A product transfer is a straightforward process compared to a remortgage, especially if you’re not changing the mortgage term or borrowing more. It can often provide a new deal without the need for further assessment of affordability or credit checks. However, if you only look at these exclusively it could mean you miss out on lower rates available elsewhere.
Explore Product Transfer Deals
A good broker will be able to compare options from your existing lender alongside any offering available with a new lender.
Remortgaging to a New Lender
Understand Potential Fees
When remortgaging to a new lender, be aware of any upfront fees, such as valuation, arrangement, or legal fees. Ensure you understand the cost to remortgage as you may not recover them if you decide not to proceed with the new mortgage.
Risks of Ditching a Reserved Deal
Consider Future Scenarios
Ditching a reserved deal for a new one can have financial implications. If better deals emerge, waiting may have been a wiser choice. However, locking in a rate can be seen as insurance against rising rates. Be prepared for the possibility of paying new fees if you change your locked-in rate.
Seek Professional Guidance
The Value of Mortgage Brokers when applying for a remortgage
Engaging a mortgage broker is advisable, as they can help you navigate the complexities of the mortgage market and find the right deal for your unique situation. They may have access to exclusive deals or lenders that may not be freely available on the high street.
Brokers have insider knowledge about lenders’ policies, making it easier to find a suitable deal with a favorable lock-in period. They can also guide you on mortgages with minimal upfront costs and provide valuable advice on potential risks and outcomes.
Check Your Credit Report
Establish Financial Discipline
Lenders assess your creditworthiness before granting a remortgage. To ensure a favorable outcome, check your credit report with agencies like Experian, Equifax, and TransUnion. Review your report for accuracy and consider making improvements if necessary. We suggest checking a copy via checkmyfile which shows all 3 agencies under one report
What’s Included and What’s Not
Learn what information is included in your credit report, including credit cards, loans, and more. Ensure your report is up to date and free of errors to improve your chances of approval. If you have bad credit, all is not lost. Check out our blog on getting a mortgage with bad credit.
Assess Borrowing Capacity
Knowing how much can you remortgage for is key. Lenders no longer rely solely on income multiples to determine borrowing capacity. They evaluate your ability to afford repayments based on various factors, including debt, expenses, and potential interest rate rises. Calculate your borrowing capacity to understand your financial limits.
Timing Matters for Remortgaging
Avoid Early Repayment Charges
Many mortgages come with early repayment charges during the initial incentive period. Plan your remortgage date carefully to avoid triggering these costly charges. Most remortgage applications can be placed once you are within the last 6 months of your current deal ending. There may also be some lenders who will provide a longer offer. However, be mindful that there are a handful of lenders that still don’t provide an offer that is valid for 6 months.
Know Your Outstanding Mortgage Balance
Contact your lender to determine the exact amount required to clear your mortgage on a specific date. Ensure this figure includes any early repayment charges or admin fees.
Challenges for the Self-Employed
Self-employed individuals or those with unique income situations may face challenges in securing a remortgage. Providing solid proof of income through business accounts or tax returns is essential. Consult a mortgage broker for guidance in these cases as many lenders post covid have taken a more cautious approach to self-employed applications. For more information on getting a mortgage when self-employed see our blog here.
Estimate Your Property’s Value
Get a Realistic Valuation
Before exploring remortgage rates, estimate your property’s current value. Ensure your estimate aligns with the lender’s valuation, as it will impact your loan-to-value (LTV) ratio. There are tools available via Rightmove, Zoopla and even Nationwide house price index are all good starting points to gauge how much your property may be worth.
LTV is a crucial factor in determining your mortgage rate. Calculate your LTV by dividing your outstanding mortgage balance by your property’s current value. A lower LTV often results in lower interest rates.
Tips for Dropping an LTV Band
To secure a lower interest rate, aim to drop to a lower LTV band. This can be achieved by borrowing less or increasing your property’s valuation.
Be Financially Prepared
Organise Your Finances
Lenders not only consider your credit score but also your financial stability. In the weeks leading up to your remortgage application, avoid erratic spending and ensure your finances are in order. Lenders are also not keen on certain transactions which could highlight other issues such as gambling.
Gather Necessary Documentation
Simplify the Process
You may wonder what is needed to remortgage. It is important to compile essential documents such as bank statements, pay slips, tax returns, and proof of bonuses in advance. Providing these documents together can expedite your application. A further list of documents commonly needed can be found here.
Responding to a Declined Application
If your application is rejected don’t panic it can happen from time to time., avoid multiple reapplications, which can harm your credit score. Review your credit report and address any issues. Consult the lender to understand the reason for rejection before proceeding.
Successful remortgaging requires careful planning and consideration of various factors. By following these tips, you can navigate the process confidently, secure a favorable mortgage deal, and potentially save thousands of pounds in the long term.