Every homeowner remortgages: Here’s why and how to do it.

• Alex Hartley
• 17th May, 2021
• Home-ownership

Over the last decade, both the size and shape of the UK remortgage market has changed considerably. According to the Mortgage Lending and Administration Return (MLAR) data submitted to the Financial Conduct Authority, the value of residential mortgage loans outstanding as of the end of 2020 was £1,541.4 billion. In 2020, the gross mortgage lending was £249 billion, a slight drop from the £276 billion advanced in 2019.

In 2020 Q4, 18.5% of the amounts advanced to owner-occupiers went to remortgages with 24.3% going to first time home buyers.  The highest share of owner-occupation remortgages in 2020 was in Q2 where it went up to 37.8%, surpassing the percentages for first time home buyers, buy-to-let, and home movers.

Many of the mortgages advanced had loan to value (LTV) ratios of 75%, meaning most lenders will approve deals up to 75% of the value of your home. With the lockdown restrictions now lifting and property prices picking up, the remortgaging market is poised to grow one more. Considering these developments and the state of the current market, here is what you need to know about remortgaging your property and how to do it right.

Why Do People Remortgage?

People remortgage for different reasons. However, many homeowners tend towards certain specific reasons why they hit the remortgage market looking for appealing deals.  If you are looking to remortgage your home, here are some reasons to think about and take advantage of.

Getting a Better Rate

Mortgage deals are negotiated based on different interest rates structures. For instance, you may be on a fixed rate for a certain duration and then transit into a variable rate. If you find yourself with a mortgage where the interest rate you are paying is way too high compared to the prevailing market rate, it will be worth shopping around for a remortgage deal.

However, before doing so, you must do your math well to help you assess the impact of your new mortgage deal. Think about your current monthly payments and how your payments will be under the new deal factoring in future rate changes. If you aren’t sure, talk to a mortgage broker to help you make sense of the numbers.

Debt Consolidation

If you have multiple debts that you are servicing, you may want to consolidate them into a single loan. Remortgaging your home allows you to add these debts to your lower-rate mortgage using your home as collateral. This option is appealing, but before you secure borrowing against your property, think of the repayment structure and whether you can afford the repayments.

Financing Home Improvements

In the UK, home improvements and renovations cost between £ 1,000 to £ 2,000 per square metre if you are doing an extension. However, for essentials such as utilities, designs, and plumbing, you may have to spend anywhere between £ 5,000 and £ 10,000. To finance such costs, you may increase your borrowing by remortgaging your home to access the extra funds. This kind of expenditure is an investment in your property and if done well could generate a significant profit by raising your property’s value much more than you’ve spent.

Cashflow Boosting

The current economic climate is very unpredictable with households going through troublesome times through loss of jobs or income streams. Especially during the covid time, many people have seen their cashflows drying up due to reduced salaries, job loss, or illnesses. Remortgaging your home at such a point in time helps you to get some funds to address your financial situation.

The Steps to Remortgaging

Before you remortgage, think about your financial situation and the impact of the remortgage deal on your outgoings. To ensure you don’t miss any step of the remortgage process, here is an overview of the stages involved.

Completing an Agreement in Principle

An agreement in principle helps you check whether a mortgage lender can advance you the amount you need without conducting a full credit check. This stage helps you to weigh your options hence you don’t have to choose a specific remortgage deal. Compare the proposed interest rates and discount periods.

Thinking through the Costs

As you think about your new lender and whether they are better off, find out if they charge any of the following fees:

• Application Fee – Some lenders call this a booking, product, or arrangement fee. You may be charged anything between 1.5%-2%.
• Valuation Fee – This is charged by valuers to confirm your property value. Most remortgage deals don’t charge a valuation fee.
• Conveyancing solicitor’s Fee – To help you manage the mortgage transfer, a conveyancer will charge you a fee

In addition to the above fees, ask your prospective lender if they will charge you an early repayment fee or exit fee should you remortgage in the future.

Making the Remortgage Application

Using your agreement in principle, you can comfortably submit a remortgage application. To do this, you must provide specific details about your current mortgage, your financial, and personal circumstances. Ensure that you have documentation to help you prove your earnings and the necessary paperwork for any credit or loan commitments you may have.

Completing the Final Steps

When remortgaging, the final steps are the same as when buying a new home. For instance, your lender will run a credit check and arrange for property valuation. Some mortgage lenders have solicitors or conveyancers to help you manage your mortgage transfer. If your lender doesn’t provide a solicitor, you need to get one yourself.

Conclusion

Whether you’ve come to the moment when you need to remortgage your home or you are preparing for such a time, you’ve got to understand how the process works. Most lenders look at both your property value and your ability to repay the mortgage when considering how much to approve you for. Before you sign on the dotted line, ensure you’ve read and understood the new mortgage terms and what will be expected of you.  If you cannot compare the numerous deals yourself then contact a mortgage adviser to help you out.

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