Are you considering a remortgage? Maybe you hope to reduce your outgoings or raise funds to improve your home. Interest rates have been low for some time now, so is this the time to make your application and save yourself some real money?
Before you do, there are a number of factors you should take into consideration, particularly the costs involved in arranging the new mortgage.
On the plus side
The headline interest rate has been low since the summer. That’s the rate set by the Bank of England, currently 0.1 percent.
There’s no guarantee a mortgage lender will offer the same, but if you’re currently on a higher fixed rate, it would certainly pay to look for a new deal.
The lower interest rate would reduce your monthly payments and could represent significant savings over the lifetime of your mortgage, particularly if you can fix the lower rate for part of your term.
Similarly for landlords, buy-to-let mortgage interest rates have dropped dramatically in recent years, so deals currently on the market will be a lot better than products arranged a few years ago. It’s sensible therefore to shop around and remortgage. That being said, landlords will now have to consider the PRA rules.
Furthermore, with large increases in property prices in London over the last five years, another tip is to get your rental property revalued. This will make your lender recalculate your LTV, and a lower LTV means a better interest rate and a larger choice of lenders.
Get a free rental property valuation with our online rental calculator.
Current deal running out
You might be on a low interest rate, but check when that deal expires. If your lender normally switches you back to a standard variable rate at the end of the term, it would pay you to look for a new fixed-term deal now while interest rates are low.
The general advice is to look for a new deal quickly as processing can be slow in the current climate. Some commentators suggest looking 14 weeks before the end of your current deal.
An opportunity to borrow more
If you want to raise funds for home improvements or other major purchases, such as a new car, remortgaging at low interest rates could be a useful move. You could have that extra money for the same monthly repayments, or lower.
Move to more flexible payment arrangements
If your financial circumstances have improved and you want to increase your payments to reduce the overall mortgage term, it could prove frustrating if your lender won’t accept over-payments on your current deal.
Remortgaging to a new deal or a new lender that offers more flexibility means you could make higher regular payments or occasional one-off payments. Depending on future interest rate changes, those higher repayments now could reduce the total cost of your mortgage.
Access to a wider range of deals
Your property’s value may have increased since you took out your current mortgage, particularly if you bought it more than ten years ago. That means your loan-to-value rate has improved and you can now access deals that offer much better rates.
Related: Can I Move House And Keep The Same Mortgage?
A word of caution
Check the costs of remortgaging
A new mortgage at low interest rates could reduce your costs, but you have to balance the savings against the fees you will incur.
These include a surveyor’s fee to confirm the value of your property, a solicitor’s fee for transferring the mortgage and an ‘arrangement fee’ for setting up the new mortgage. You may also be liable for an exit fee or early repayment charge if you close your current deal before the end of its agreed term.
Of course, you can get a free property valuation through our online calculator which is a great place to start.
Lenders are cautious
In the current economic climate, lenders are understandably cautious and may be unwilling to lend if they consider your application to be risky.
For example, you may be furloughed or self-employed. You might have missed repayments on other debts or have a lower credit score for historic reasons. If lenders raise any concerns, you will have to make a strong case and provide evidence that you can afford the repayments.
You may see a remortgage as a way of accessing essential funds if you are having problems because of the pandemic. A remortgage is a long-term solution and you may incur problems by taking on additional debt at this point.
Before applying, it’s important to look at other options such as repayment holidays or different types of loan.
Small mortgage remaining
If you only have a short term remaining on your mortgage or a small amount left to pay, a new deal may not provide any real benefit when you take account of any fees and early repayment charges.
Commentators indicate that a repayment of less than £50,000 is the recommended minimum, while some lenders may not offer remortgages for less than £25,000.
Risk of negative equity
Taking out a larger mortgage can be a useful way to release funds, particularly if the value of your property has risen.
However, property value can also fall, which could wipe out the benefit of the equity you had and leave you in negative equity. That could mean the size of your new mortgage becomes larger than the value of your property.
Remortgaging during Covid
The pandemic has changed the mortgage market and, while remortgages continue to be available, applications may be more difficult and you may have to wait a long time for approval and release of funds.
During the early stages of the pandemic, the number of products available fell sharply to almost 50 percent of their pre-Covid level. While lenders have started to reintroduce products, numbers have not returned to ‘normal’ levels, so your choice may be limited.
As we mentioned earlier, lenders are more cautious while economic uncertainty continues. You will have to provide a strong financial case with evidence of your ability to maintain repayments.
Mortgage lenders, like other employers, face challenges in maintaining their normal services. As a result, timescales for processing and finalising applications have lengthened and this means delays in receiving funds.
While remortgaging can be an effective solution for reducing your costs or freeing funds during difficult times, it’s important to remember there are alternatives such as repayment holidays that may provide you with short-term help.
Portico can help
Choosing the right mortgage provider can be a confusing and intimidating process, especially with tougher lending rules.
That’s why we decided to bring the process in-house and launch Portico Finance, an FCA approved mortgage broker and protection service. We have access to a huge range of mortgages that could potentially save you a great deal. So, if you're remortgaging, please feel free to contact us to find out how Portico Finance can help.