Remortgages

What is a remortgage and how does it differ from a regular mortgage?

A regular mortgage is where you’re trying to obtain finance on a property, while a remortgage is where you’ve already got a mortgage on your home and you’re looking to change that.

Often that may be due to you coming to the end of your existing fixed period. A lot of clients get in contact a couple of months out from their fixed period expiring to see what’s available.

That’s not always the case. I’ve had a good couple of clients that are on variable products and their objectives have changed. They want to raise extra finance, whether that’s for home improvements or debt consolidation. They might even raise finance for an investment Buy to Let.

How does the process of remortgaging work in the UK and how long does it take?

I can’t always promise it, but generally it’s more straightforward timewise. If you stay with your existing lender it can be done in a couple of days at most.

With a new lender it might take a few weeks. That being said, I always advise clients to get in contact with me six months prior to the end of a fixed period, to make sure we’ve got a window to review their circumstances and objectives. At the end of that fixed product we will then be ready to transfer onto their new product.

The process of the remortgage is similar to purchasing a property. The income and expenditure assessment will be done, we’ll explore your objectives and look at the property. Instead of a deposit, we’ll be looking at the amount of equity you’ve got in the property.

We’ll see what you are looking to do – is it a like for like remortgage or are you looking to capital raise on top of your existing balance?

What are the main reasons why people choose to remortgage?

There are probably two or three main reasons. The main one is to get a more cost-effective product – although that may be slightly difficult in the current market.

A lot of my clients who’ve had mortgages in place for a couple of years now, are coming off rates of one or two percent. So although the rates now are higher [podcast recorded in April 2024], we’re looking at the most cost effective, suitable mortgage in the present climate.

Another reason is to raise funds for other purposes. There’s a whole host of reasons why you might want to raise capital on top of your existing finance. It could be for home improvements, or to consolidate existing debt and bring your household expenditure down. You might want to raise funds to help purchase a Buy to Let property.

You could be a portfolio landlord looking to increase your portfolio or a first-time landlord looking to venture into that world.

What happens to my existing mortgage when I remortgage?

If you were to stay with the same lender, it would be pretty streamlined. You’d just move to a new product.

If you move to a different lender, effectively what happens is your existing mortgage will be fully redeemed. We then transfer that mortgage debt to your new lender.

What happens if I don’t remortgage after my deal expires?

At the end of your current deal you will go on to what’s known as the SVR – the lender’s Standard Variable Rate. That will generally be higher than what you’re currently paying, especially if you’re on a fixed product.

What are the advantages and disadvantages of fixed rate versus variable rate remortgages?

With a fixed rate the clue is in the name. It gives you the security and stability of fixed payments and you will know exactly how long that product is fixed for – two, three or five years etc. If you like putting your head on your pillow each night knowing exactly what you’re paying, that’s likely to be a suitable product.

The disadvantage of a fixed product is if interest rates reduce during your fixed period, you won’t feel the benefit of that. That’s in contrast to a variable rate – where, as you can imagine, the disadvantages are the volatility.

So if interest rates increase, there’s a good possibility you’ll feel that with an increase in your monthly payments. But if interest rates reduce, you should feel the benefit – whether that’s a month or two to three months down the line. You wouldn’t have to wait for a fixed product to see your payments reduce.

Another advantage of variable products is that lenders don’t often set early repayment charges. Certain clients do like that and are willing to accept the risk if there’s room in their budget.

What factors should I consider when deciding whether to remortgage?

One of the main factors has to be affordability. Whether it’s a purchase or remortgage, any future monthly payments have to be affordable. If you did want to raise capital for whatever reason, if a lender will give you that amount of money it still has to be affordable based on your current income and expenditure.

I would also encourage you to think about how early you need those funds. For clients looking to invest in Buy to Let properties, I ask whether it’s an immediate plan or something that might materialise in a couple of years.

It might not be the time to capital raise. In a couple of years it might be more suitable – because ultimately, once the funds are released you will pay interest on that from day one.

Can I remortgage to consolidate my debts?

That’s been quite a common theme in the last 12 months, with interest rates rising. Clients are now looking at consolidating debt

I don’t just jump in and recommend it, but it is something we can review with you. We’ll do a full breakdown – look at the debt and whether it’s financially beneficial to do that.

Can I remortgage if I have bad credit?

A lot of clients do have bad credit or adverse credit and there are different levels of this. The beauty of coming to an adviser is we have 60 to 70 lenders at our disposal. So if you do have adverse credit, while not every lender will have an appetite to lend, most likely there will be a suitable lender for you.

Adverse credit is not permanent. It’s always transitioning and will only be on your credit file for a certain period of time. So an adverse lender will just be a temporary solution – in a couple of years’ time we could look to remortgage you to a more cost-effective high street lender, if that fits your scenario.