Remortgage
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Remortgage
What is a remortgage and how does the process of remortgaging work in the UK?
A remortgage is the process of moving from one lender to another, when you already own a property. The process would usually start when an existing product is coming to an end.
Perhaps you’re on a two year fixed rate with Santander until the end of April 2025, for example. Ahead of that you may choose to look at changing that mortgage product and potentially moving to a different lender.
How long does it take to remortgage? How often can I remortgage my property?
As a general overview we’d be looking at, comfortably, 12 weeks. That enables the advisor to assess and review to place you with the correct lender. It gives you time to collate the information you may need to facilitate the remortgage. And, because there is some legal work when moving from one lender to another, we have to also factor that into the timeframe.
In terms of how often you can remortgage, it’s down to your circumstances and why you’re remortgaging. But if your rate is about to expire, you could do it at the end of each product which typically is two, three or five years. There isn’t a limit to how often you could remortgage, but that’s what we’d usually see.
Can I switch lenders when remortgaging?
Technically speaking, a remortgage is where you transfer from lender A to lender B. But we do often talk to existing clients about what’s known as a product transfer or product switch.
That’s where you would obtain a new mortgage rate but you would stay with your existing lender. So in the example given earlier, you would stay with Santander. That would be a product transfer rather than a remortgage.
Here at Thomas Nicholas we actually call it a Mortgage Review rather than a remortgage. We’re reviewing whether the best thing for our client is to stay with their existing lender or if there’s a need for a remortgage away to another lender.
All your details will be taken into account and we would decide together on the right course of action.
What are the main reasons people choose to remortgage?
The main and most frequent reason is because a rate is coming to its end. However, there are times that people need to take further borrowing, for reasons including debt consolidation and home improvements.
People might even remortgage for a holiday of a lifetime. But mainly we see it tied in with a rate expiring. A qualified, experienced advisor will speak to you to understand you and your needs.
Using the example of debt consolidation, it might be that when we’ve looked into that with a client, there are other ways to rearrange their existing finances without putting debts onto their mortgage. We always take time to understand somebody’s circumstances.
It may be that we don’t recommend a remortgage – it’s so important to understand the full position of the person you’re speaking to.
What happens to my existing mortgage if I remortgage?
At the end of a fixed rate, you might move away from lender A to lender B. On the date that the remortgage goes through, lender A is repaid in full and their name is taken off Land Registry records.
It’s then taken over by lender B – you would then become a customer of NatWest or HSBC instead of Santander, for example.
What happens at the end of my deal if I do nothing?
If you were to get to the end of a fixed rate period and you were to do nothing at all, you would generally go on to what’s known as the lender’s standard variable rate.
This is inherently more expensive than the rate that you would have been on before – so you would see quite a marked jump up on your monthly mortgage payment.
So it’s sensible to have already spoken to an advisor and understand what you’re going to do at that point. You can have another product lined up to avoid you having to pay any unnecessary interest.
That said, there are some occasions where not remortgaging can be the right thing to do. For example, if you want to be able to make a large overpayment on your mortgage and want the flexibility to do that, going on to the standard variable rate for a period of time might be the right thing to do.
Similarly, if you were looking at selling your home and not buying a property straight away, being on a standard variable rate would enable you to pay off the mortgage without having any early repayment charges.
Having sound advice from somebody qualified, with the experience to look at that for you, is invaluable.
What factors should I consider when deciding whether to remortgage?
I think it’s more that the advisor needs to consider certain factors when recommending a remortgage. It’s about assessing your needs – do you need to move lender? What’s your current lender offering you? We don’t just want to remortgage willy-nilly if it’s not in the client’s best interests.
The factors that a client should consider are when their rate is coming to an end, and whether they need extra borrowing. They’re just the initial factors that would lead them to us.
We’ve seen people who have just gone back to their existing lender, which isn’t able to give advice – and they’ve ended up doing something that was totally inappropriate for their plans. So we always encourage you to find an advisor for a broad overview based on your circumstances.
Can I remortgage if I have bad credit?
Absolutely. There are, of course, all the high street lenders that people will know. But there are a number of lenders that sit just behind those, who cater for people who may have had a small blip due to personal circumstances or life events.
If you’re unsure of your credit profile, there are free services online where you can check that information. Here at Thomas Nicholas, we have a fantastic client system that gets you a free copy of your credit report.
Having all that information upfront helps us give clients the most accurate advice. If there has been a small blip, we will look at whether it’s appropriate to move away from the existing lender. It may be better to keep them with that existing lender for a couple of years whilst that blip on the credit report moves further away.
We could look at a remortgage in the future – especially if they needed to do some extra borrowing at that point. It all comes back to getting the right advice from somebody who’s going to take the time to understand your circumstances.
Will I have to pay any fees or penalties when remortgaging?
Again, it’s circumstantial but as a broad overview, some lenders have small exit fees that are added to your redemption – the final figure you repay.
But, typically, you’re going to be remortgaging when your product expires, at which point any penalties also expire. Where possible, we want to avoid anyone paying penalties on their mortgage.
Aside from small exit fees, which might be between £65 and £225 depending on the lender, we look to prevent anyone paying any fees. In some circumstances, you may have to pay a penalty – but that would have been assessed and incorporated into the advice given.
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How much could someone potentially save by remortgaging?
We need to look at the cost of doing nothing. So if you have a fixed rate that finishes at the end of April and you choose to do nothing, you would go on to the standard variable rate. At the time of recording in April 2024, some of the standard variable rates are 7% to 9%.
If somebody is coming off a fixed rate of 2% or 3%, that’s a huge jump in what they will pay per month. So we would always recommend speaking to an advisor who will explain what it will cost to do nothing.
We’ll explain the costs if you choose to take another product with your existing lender, or move your mortgage payment to a different lender.
You could be looking at a difference of several hundreds of pounds per month between doing nothing and taking another interest rate, either with your existing lender or with a new lender.
What documentation will I need to provide to remortgage?
The documentation for any mortgage is pretty standard. We would need to assess and verify your identification, and get a copy of your credit report and proof of income. If you’re employed, that generally means supplying the last three pay slips; if you’re self-employed we’re looking at tax documents and accounts.
We also assess your incomings and outgoings via three months of bank statements. As part of our service to clients we’ve invested in a great system where you can do a free ID check (for money laundering purposes), get a free copy of your Equifax credit report and securely upload all those documents. They are stored within our client system which allows us to see absolutely everything and give the very best advice.
If we didn’t ask for those documents, and somebody said they earned a certain amount and it turned out to be slightly different, or there was an issue on their credit report they didn’t know about, it could affect the mortgage. So that’s why we collect all those documents within our client system.
Will I need a new valuation or survey when remortgaging?
The valuation will be provided by the nominated lender, so yes, a valuation is going to be carried out on the property. It’s just for the lender to check it is reasonable security for them to lend against .
Typically, with remortgaging a lender will just do an automated valuation, which means they don’t attend the property. They’re just using data available to them. It’s still carried out by in-depth systems and a qualified RICS surveyor will be overseeing it.
Is it harder to remortgage if I am self-employed or a contractor?
It may be if you don’t see a mortgage advisor. Again, it all comes down to experience and understanding the different ways that people are paid. The term self-employed can mean different things in terms of how somebody’s paid and the way they pay their tax.
They might be a sole trader, a partnership, a limited company or perhaps they work in the construction industry and pay through the CIS scheme. Over the years we have helped hundreds of people under the self-employed / contractor banner.
We ask for all of the information upfront, so we can assess those tax documents and accounts, if they’re a limited company, because each lender looks at things slightly differently.
If you went with exactly the same information to one lender they might say they can’t lend the amount you need. But another may look at the way you’re paid in a totally different way. They might come out with a significantly higher amount or better product.
What happens if my property value has decreased since I initially obtained my mortgage?
This is actually something we’ve started to see. Since we began this business over fifteen years ago we’ve always been on a trajectory of house prices increasing by 5% or 10% a year.
But post-Covid we have seen a flattening out in the housing market. The data that lenders hold within their systems are showing some house price indexes falling slightly.
It may mean that a client moves into a slightly different loan to value bracket which might affect the interest rate that they get. It might mean, in certain circumstances, that we need to try and get a physical valuation carried out for the client with a new lender.
If their existing lender holds a figure that is marginally lower than we feel it could be, we can look at other lenders and perhaps get an updated valuation done by a human being. We don’t just rely on one source of information or one lender. We can see if there is a way to potentially update that valuation to be more favourable.
What are the advantages and disadvantages of a fixed rate versus a variable rate for remortgages?
A fixed rate essentially will fix your payment for a prescribed number of years, whether that’s two, three, five or even up to 10 years. It’s very helpful for budgeting purposes. You will know for the next five years that your payment is going to be a set amount.
A variable rate can move up and down depending on what happens in the market. The advantage with a variable rate comes when we’re in a market where rates might start to come down. You would then see a proportionate reduction in your monthly payment. But on the flip side of that, if we had another crazy world event that nobody’s foreseen, you may find that interest rates go up again.
On a variable rate, you would have to be able to absorb any increased costs that come with a rate rise. The two are obviously very different. We always look at the client’s attitude to risk and how much flexibility they need.
With fixed interest rates, that lender is generally wanting to hold on to you as a customer for the period of the fix. If you go into a five-year fixed rate it would usually be uneconomical to come out, because there would be a penalty attached.
If you wanted to pay the mortgage off in 12 months time, or make a large overpayment, or fundamentally change the mortgage, with a variable rate there wouldn’t be these sizeable penalties – so they do afford a bit more flexibility. But to get that flexibility you have to be prepared for the risks of a variable rate.
Can I remortgage if I’m nearing retirement age?
It’s absolutely possible. Now is a favourable time, where lenders have become wise to people owning properties for longer and working longer. If you are wanting to retire there are products out there even from the high street that are designed for later life borrowers.
If you’re speaking to the right person who knows the lenders, the products and can understand your needs, then borrowing near retirement is completely possible.
Historically, you’d always see mortgages for 25 years or up to somebody’s 65th birthday. We’re seeing people in their late 60s, and early 70s who still want to work. The high street lenders are starting to really understand this. Hitting 65 and finding nobody wants to help you anymore is becoming a dim and distant memory, thankfully.
What else do we need to know about remortgaging?
Some people come to us saying that they went through a house buying process two or three years ago where there was a lot involved. They want a quick and easy remortgage. The danger you could fall into there is not fully exploring that client’s position.
We will always listen and recommend what we feel is best for someone at that time. Remortgaging is just as important as the first time we speak to somebody – because life might have changed in that time. We may need to review other products with them such as their home insurance or life insurance.
If you’re in a position where you need to review your mortgage rate, speak to somebody qualified who has the experience and knowledge to give you the very best advice possible.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up with your mortgage repayments.
You may have to pay an early repayment charge to your existing lender if you remortgage.
