Remortgages

Could remortgaging your property save you money? Very possibly.

Every year, over half of UK homeowners spend around £3,500 too much on their mortgage. A lot of people stick with their lender after their introductory rate has finished, which is when they get switched to the lender’s own standard variable rate (SVR), likely to be a worse deal.

Remortgaging – aka getting a new mortgage, either with your lender or a different lender – may sound complicated, but it doesn’t have to be. And it’s likely to save you money.

This guide covers everything, from why you’d remortgage, to how to find the best deal, to when remortgaging might not be the right choice.

What is a remortgage?

Remortgaging means changing your mortgage deal, either by switching to a different lender, or staying with your current lender but getting a different rate from them.

The idea of remortgaging is:

  • Ideally, to cut your monthly mortgage payments.
  • Or to release money from your property by borrowing more money against it.

You might even be able to do both. Really, it’s just the same as switching your energy, mobile or broadband provider – if you can get on a better rate, you stand to save more.

Homeowners on a standard variable rate mortgage (SVR is a rate determined by your lender) can pay around spend around £3,500 a year more compared to people who remortgage to a new fixed rate deal.

How much can I remortgage my house for?

Remortgaging to borrow more money? How much you can borrow depends on a few factors, but mainly how much money you have after paying your regular financial commitments.

Lenders will also look at your LTV (loan-to-value) ratio – the size of your mortgage as a percentage of the current value of your property. For example, a borrower taking on a £150,000 mortgage to purchase a home valued at £250,000 would have an LTV ratio of 60%.

To give you a good idea of how much you can remortgage your house for, check out our remortgage calculator.

Can I get a buy-to-let remortgage?

The simple answer is yes, any property can be remortgaged – as long as you have enough equity in the property and you’re proposing to charge a lot more rent than your mortgage payments will be. Also see: Remortgaging your buy-to-let loan.

When can I remortgage?

Usually, lenders won’t offer you a remortgage till you’ve been paying off your first mortgage for at least six months. Even then, they may base your remortgage on the value of the property when you first bought it. They might also ask you to pay an early exit fee. All that means remortgaging typically isn’t worthwhile until your initial discounted rate period – usually two to five years – is over.

After that, of course, it’s a very different story. It’s a good idea to start looking for your next mortgage around 3 to 4 months before your existing deal finishes.

Your broker should be able to tell you whether it’s worth switching early or waiting until later.

How remortgaging works

Remortgaging to get a better interest rate

Remortgaging is a great way to get a better rate on your loan repayments and hopefully make your monthly payments cheaper. One of the best ways to do this is to try and reduce your loan-to-value (LTV). LTV is the size of your mortgage compared to the value of your property. So, if your property is valued at £200,000 and you have an outstanding mortgage of £150,000, then your LTV will be 75%.

Mortgage rates are based on LTV bands, usually of 5% – so 95%, 90%, 85%, etc. The lower your band when you apply for a remortgage, the wider your choice of deals will be.

Let’s say your current LTV is 62% and you’re thinking about remortgaging soon. You may want to consider overpaying on your current mortgage (ie paying more than your minimum loan repayments) until you drop down into the next LTV band. Even a small increase in your monthly payments can lead to hefty savings – overpaying doesn’t just reduce your loan, it also gets rid of the interest you would have paid on that part of the loan. Make sure you’re allowed to overpay without penalties first – sometimes lenders will restrict the amount you’re allowed to overpay during the introductory rate period of a mortgage.

If the value of your property has gone up, that could help you drop an LTV band too – if LTV = mortgage/value then more value means a lower LTV. To maximise your chances of a higher valuation, always put an (accurate) top price you think your property is worth on the application and make sure that it looks presentable inside and out when the surveyor visits. In the case of remortgages, most valuations are automated, but not always.

Remortgaging to get more flexibility

As well as saving you money, remortgaging can also help loosen the restrictions on your loan agreement, giving you increased flexibility over your finances. This is useful if your circumstances have changed – or are likely to change – since you took out your original mortgage.

For instance, say you had a windfall or got a promotion, and now want to start paying more to become mortgage-free faster, either by paying the lender a big lump sum or by upping your regular monthly payments.

You might want to remortgage to a deal that lets you take a payment holiday – a break from your mortgage repayments (though you’ll still pay the interest on your loan).

Or you might want to get on an offset mortgage: you open a current or savings account with your mortgage lender, who then won’t charge you interest on the same amount in your mortgage.

So if you have a £100,000 mortgage and put £10,000 into a linked savings account, you’ll only pay interest on £90,000 of your mortgage.

Remortgaging to borrow more money

Remortgaging also lets you increase your mortgage loan if you want to – ie borrow more money against your home. If the value of your home goes up, so does your equity. Your equity is the value of the share of your property you’ve paid off in full, as opposed to the remaining share that is your mortgage.

Let’s say your home is worth £400,000 and you have a mortgage of £250,000 – that makes your equity £150,000.

Now say the value of your home goes up from £400,000 to £450,000. Your equity is now £200,000. You can now increase your mortgage amount against that – £300,000, say – meaning you borrow £50,000.

You can use that money to, for example, build an extension or even dig out the basement. If you’re thinking of spending money on your home, make sure you work out how much value you’ll really be adding, and whether it wouldn’t be more cost-effective to move. Read more on remortgaging to borrow more, aka release equity.

Can I remortgage to pay off my Help to Buy loan?

Yes. As you probably know, Help to Buy lets you buy a new-build property with as little as a 5% deposit – the government lends you the rest of the deposit (up to 20% of the sale price) and you borrow the rest via a standard repayment mortgage. The government loan is interest-free for five years, but then interest starts to rise year-on-year, so in most cases after that five-year period has elapsed it’s cheaper to remortgage and repay their HTB loan.

Of course, you’ll need to make sure you can repay the mortgage itself, when your HTB loan is added to your mortgage. Whatever you do, you’ll need to get permission from your Help to Buy agent, and like always make sure you’ve worked out the numbers in advance. This is where using a fee-free broker who can talk through your specific situation comes in handy.

Why remortgaging might not make sense

Most homeowners will be able to get a hassle-free remortgage, but there are some cases where remortgaging might be tricky or just not worth your while. Your original mortgage offer letter should point out some things to look out for. These might include:

When early repayment charges are prohibitive

If you leave your mortgage deal early, you may be charged an early repayment fee, which might mean that, financially, remortgaging doesn’t make sense.

Let’s say you have a remaining mortgage loan of £50,000 and the early repayment charge in your contract is 5%. You’d be charged an exit fee of £2,500. As a result, sticking with your current mortgage – at least until the early repayment charge clause expires – can sometimes outweigh the benefits of remortgaging.

If your remaining mortgage is too small

If your remaining mortgage debt is relatively small, say less than £50,000, then the fees involved with switching lenders sometimes make a remortgage financially impractical. Usually that’s not the case though.

As a basic rule of thumb, the smaller your mortgage is, the more impact any remortgage fees will have. And once your mortgage gets down to around £25,000, some lenders simply won’t consider you for a remortgage at all.

Why remortgaging to pay off debt can be a bad idea

Debt consolidation sounds sensible: a good way to pay off money owed, by combining different bits of debt into your mortgage. The idea is to move high-interest debts, like credit cards, which cost you a lot of money each month, into a low-interest, long-term remortgage. But it’s not always sensible.

That’s because even though interest rates on mortgages are normally lower than rates on personal loans – and much lower than credit cards – you might end up paying far more overall if the loan is over a longer term.

For example, let’s say you have debts of £10,000 and you remortgage with 4% interest over 20 years. In the first year you’d pay £393.93 in interest, then over the 20 years your total interest will be £4,543.53.

Now take that same £10,000 loan and pay it off at a higher interest rate, 15%, over 3 years. That first year you’ll pay £1,309.29 in interest. But over the 3 years, you pay less interest in total: £2,479.52.

Essentially, as long as you can afford the larger monthly payments, a credit card or personal loan can be a more effective way to handle your debt than a so-called ‘debt consolidation’ remortgage deal. Remember to consider the loan length and how much overall you’ll be paying.

The other major issue with paying off debt with a remortgage is that you’re switching unsecured debt to secured debt – secured against your property. This means you could be putting your home at risk if you can’t afford to make the monthly mortgage repayments.

If you need a hand dealing with debt, there’s more information on the Money Advice Service.

Is remortgaging worth the hassle?

Simply put: yes. On average, you can save about £3,500 a year if you switch mortgages, rather than just stay with your lender after your initial fixed deal ends. You can also use them to take on more debt, if you want to or need to. It shouldn’t be too complicated a process, and a broker can help.

It’s more important than ever for homeowners to get the best deal they can on their mortgage. Say you’re on a variable rate – when interest rates rise, you’ll feel the pinch. For example, the knock-on cost of a 1% interest rate rise on a 25-year £200,000 mortgage would be an extra £150 a month, or £1,760 a year. A remortgage can help you get a better deal.

The takeaway is this: make sure you’re on the best deal you can get, and you’ll be likely to save more money than if you stay with your lender and their standard variable rate.

How do I remortgage?

How long does it take to remortgage?

It normally takes around six weeks to switch to a new mortgage deal with the same lender. If you’re applying to switch lenders, it’ll take longer.

To avoid frustrating delays, start looking into it in advance – roughly eight weeks to three months before your current rate expires is ideal. Don’t worry, you won’t have to switch the second you’re approved. A successful mortgage offer usually comes with an expiry date of 3 months, so you can take more time if you need to.

Here’s a rough timeline for finding and securing a remortgage deal:

  1. Speak to a mortgage broker
  2. Get your documents together
  3. Submit your mortgage application
  4. The lender values your property, sometimes automatically
  5. You get a mortgage offer from the lender to confirm your mortgage has been approved
  6. A solicitor handles the transfer of deeds from one lender to another
  7. Your mortgage completes
  8. You receive a letter from the new lender confirming your mortgage has been transferred, and that they’ll start taking new payments

What documents do I need for remortgaging?

Missing paperwork can really hold up a remortgage, so try to have everything ready before you start. You’ll find you need a lot of the same documents as you did for your first mortgage.

You’ll need high-res scans of these documents:

  • Proof of salary (payslips, or SA302 forms if you’re self-employed)
  • Proof of address (council tax/utility bill)
  • ID (passport or driver’s licence)
  • Bank statements
  • Your latest mortgage statement

Here’s a full list of the documents you’ll need.

You’ll also need to know some details about your mortgage:

  • Whether it’s interest-only or repayment
  • When your deal expires
  • Whether it’s fixed or variable rate
  • How long the mortgage term is (in years)
  • Who the lender is

You can find these by checking your mortgage statement or the original mortgage paperwork.

Should I remortgage with the same lender?

It depends. If you stick with the same lender for your remortgage, you’ll almost certainly make savings on time – but just like staying with the same energy or insurance provider, it may not be the best deal for you in the long term. If you’re not sure, it might be a good idea to talk to a mortgage broker.

How much does remortgaging cost?

Remortgaging can be a great way to potentially reduce your monthly mortgage payments, but make sure you weigh up the overall costs rather than just the tempting headline rate. Here’s a list of the major fees you might face when remortgaging. Not all of them apply to all remortgages, and you can discount some of them completely by using a fee-free broker to find your remortgage deal:

Early exit fee

Some mortgage terms include an early repayment charge (which can be 2%–5% of your outstanding loan) if you change lenders while you’re still locked in to your mortgage deal. That’s why the most common time to remortgage is when your fixed or introductory tracker or discounted rate comes to an end. Ask your solicitor if they can help you avoid this charge, for example by delaying your completion date, so your remortgage only starts when your first mortgage term has ended.

Broker fees

Some mortgage brokers will charge a fee for their services – usually £200-£500 per client.

Valuation fee

Your lender will need to value your property to check the difference in value from when you first took out your mortgage. This is so they can lend you the right amount of money and make sure it’s secured against the real value of your property. Many remortgage packages will include a free valuation, but this depends entirely on the lender and the mortgage you’re getting.

Whether you’re buying, selling or remortgaging a property, you’ll need to appoint a conveyancer or solicitor: essentially a lawyer who specialises in property law. You’ll have to pay for these services, but the good news is that most remortgages include a free legal package, so often – as long as there are no extenuating circumstances – you won’t have to pay anything. Be sure to ask your broker about any fees, as they vary from lender to lender.

Can I remortgage if I have credit issues?

It’s important to make sure your credit history is as clean as can be before applying for a remortgage as it will affect your chance of securing a good remortgage deal, or any deal at all. Lenders need to know that you’re sensible with your money and can afford to make repayments on your home loan.

If your credit history isn’t blemish-free, don’t give up hope. There’s bad credit and then there’s really bad credit. A missed mobile phone payment a few years ago means you’re far less of a risk to lenders than if you have county court judgements, say.

In the UK, there are several credit reference agencies (CRAs) such as Experian, Equifax and TransUnion (formerly CallCredit), and each will hold a file on you called a credit report. Check as many as possible before applying (some are free, and the most any will cost you is £2), address any mistakes and cancel any unused credit cards that show up.