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June 13, 2022Should You Remortgage Your Property?
About one third of all home loans in the UK are actually remortgages. This can either be because a homeowner wants to raise capital against a property that they already own, or to replace an existing mortgage. This can make good financial sense, if it is done for the right reasons. Here’s a look at how remortgages work, and if it might be the right choice for you.
If your current mortgage deal is coming to an end
One of the most common reasons for remortgaging is simply that a current deal is ending, and the borrower wants to shop around for a better deal, that will cost less. You probably do this when your energy or broadband contracts come to an end, if you think there might be better options out there, and mortgages are no different.
Mortgage lenders often offer attractive deals to first time buyers, which are usually for a fixed term of two or five years. After this, you will automatically be moved to the lender’s standard variable rate (SVR), which will almost certainly be higher than your previous rate.
Given the rising interest rates, which have already hit 1% and may reach 2.5% by next year, mortgage rate rises are likely to be significant. Therefore, it makes sense for those who are coming to the end of their contracts to shop around. There’s no need to panic if you are still part way through a fixed term deal, as you will not be subject to price hikes until it ends.
In fact, you shouldn’t wait until the contract is nearly up, in case hold-ups mean you are bounced into the SVR when you don’t want to be. Look around up to six months your current deal ends, and no later than three months, as demand will be high at the moment, given the ongoing cost of living crisis that has squeezed household budgets this year.
What if your contract hasn’t finished but you want a better deal?
Exiting a deal early usually means that you will subject to an early repayment charge, which can be substantial, plus an admin fee. However, if you are currently on a tracker mortgage, which rises with the rising interest rates, you may be able to make enough savings to justify paying the exit fee. It’s worth doing the maths if you’re unhappy with your current deal.
If your property value has increased
House prices have risen sharply over the past couple of years, especially suburban and rural family homes, as buyers looked for more room and better outside space during the pandemic. If you find that your home is worth significantly more than you are paying for it, then you may fall in a lower loan to value (LTV) band.
This means that a smaller portion of the property’s value is being paid for by the mortgage, which represents less risk for the lender, should you fail to keep up with the repayments. If your property has significantly risen in value, then the sale may even cover the cost of the outstanding mortgage, and you’ll certainly be eligible for lower mortgage rates.
If you want to borrow money for another purpose
If you want a capital raising mortgage, maybe to make home improvements or for an extension, then you may want to remortgage to borrow more money. Some lenders may ask for proof as to what the capital is for, such as builder’s quotes. Some lenders may consider other reasons, such as paying off other debts or making another big life purchase.
If you have a change of circumstances
If you have significantly greater outgoings and a lower income compared to the time you took out the initial loan, then you are unlikely to find a better mortgage deal. It’s not impossible though, especially if you have a good credit score. Take advice from an experienced mortgage broker to see what your options are.
If you have a 95% mortgage
If you have put down a small 5% deposit on the property, then you may find that your remortgaging options are more limited because you have low equity. Similarly, if your house value has dropped below the price you are paying for it, then you are in negative equity, and you may be best staying with your current lender.
If you are looking for mortgage services in London, please talk to us today.
Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it.
A fee may be charged for mortgage advice. The exact amount will depend on your circumstances. I.I Financial Services Limited is an appointed representative of The Right Mortgage Limited, which is authorised and regulated by the Financial Conduct Authority. Registered in England & Wales company no. 10817448. Registered office Expressway G15, 1 Dock Road, London, E16 1AH
AUTHOR
Imran Bhatti
Imran created I.I Financial Services Ltd. in 2020 after working in the mortgage industry for over 10 years. His main reason for ‘going it alone’ was Imran’s unwavering desire to put his clients first. Imran has worked for large corporate companies as well as smaller independent brokers but what he loves is the personal customer experience. His clients are like his family. Imran loves a challenge and when faced with an unusual case he will find a way to satisfy the clients’ needs. Nothing is too difficult. Imran is a family man who devotes his spare time to his three children. Anyone who knows Imran would describe him as fun, with a great sense of humour, generous, caring and extremely professional. Once you have met Imran and experienced his service you will stay with him for life.
