UK Remortgage deals in 2016 are currently very diverse, ranging from a little as 1% for those with a lot of equity, up to 11%+ for those who have severe bad credit or difficult circumstances. For many, remortgaging can be a straightforward and simple process, for some however, changing mortgage can be difficult. In any case, having access to the whole of the market makes a real difference.
Going direct with your current lender can really limit your options. As well as varying rate, there are many different types of remortgage to choose from that suit a whole manner of preferences, so gaining some market knowledge before you dive in might be a good idea. Below is some info to give you a foundation level understanding of what’s out there.
What is equity? – Equity refers to the amount of the property you own, compared to the amount of property that is mortgaged. For example, a house worth 100k with a 65k mortgage, has 35k of equity. The loan to value (LTV) for this mortgage would therefore be 65%, so you would be eligible for any product advertised as “up to 65% LTV”.
The best rates for remortgages at the moment are some of the lowest ever. Fixed rates currently start from as low as 1.74%, but these generally come with some hefty product and application fees. It’s important to not just go for the top of the table ‘headline rate’ and take into account the total cost of the mortgage over the initial period.
For example if you are looking to borrow £200k over 25 years and have the option of mortgage A or mortgage B, which would you choose? Mortgage A 2 year fixed rate @ 1.95% with £2000 fee Approx. Total to pay 2 years = £23,229 Mortgage B 2 year fixed rate @ 2.69% with no fee Approx. Total to pay 2 years = £22,131 Mortgage A has the better rate, but is it really the best deal? Looking at the approx. total cost over the 2 years, Mortgage B would be £1098 cheaper, despite being 0.74% higher in rate.
If you have clean credit, loads of income, and equity in your property, getting the best remortgage UK rates can be simple and you are usually free to look through the best remortgage comparison tables (like on this site here), and apply to any of them you choose. Not everyone will be eligible however, as each lender has different criteria on who is and isn’t acceptable – They look at the income you earn including overtime, bonuses, commission, pensions, and benefits; they asses your credit score and payment history; the amount of borrowing you have; the amount of equity in the property; and even the property type.
The main factor that determines which is the cheapest remortgage deal for you, is the equity you have in the property. In simple terms, the more equity you have, the lower the risk to the lender, and the better the rate. Historically, remortgage rates have been much higher than they are today, in the most part due to the government and Bank of England keeping rates down to record levels. The problem for some people however, is that they head straight to their current lender or bank and take the first rate they are offered. This should really be avoided, as the chances are even if they offered you the best deal last time round, things could be very different now – remember, the market changes all the time, and your loyalty is rarely rewarded. How often do you hear of ‘great offers for new customers’, compared with bonuses being handed out to existing customers.
Shopping around for the best deal is important. Many find this time consuming and difficult because there’s so much jargon and so many options to choose, and so enlist the services of a mortgage broker to take over and arrange the best remortgage deal. For this they usually also take care of the entire switch over process from start to finish, and can also search through for the cheapest insurance deals too – taking the hassle away. If you want advice on which out of the thousands of mortgages is the best remortgage deal for you, then just make an enquiry and an expert will be in touch.
Remortgaging in most cases is a lot simpler than buying. As you already have the property there’s no need for the same rigorous legal process, searches, or inspection. The new lender will want to make sure that the house is sound and worth what you’ve put on the application form (so may only arrange a ‘drive-by’ or even online valuation), but then it’s just a case of switching the charge held on the property from one lender to the next. Because of this, and because they want the business, many lenders offer a FREE service to switch over, including a free valuation, free legal services, and often no product fees.
These types of product tend to favour those with loans under £100k, because the savings made in upfront or added fees can often equate to more than a product with a better rate but a high fee (each case is different however so it’s important to get good professional advice to determine which is the best product for you at the time of application).
In the same way it’s important to look at ‘total cost’ over your fixed period, it’s important to decide which would be the best deal for you in general. Fixed rates are now very competitive, and in the market over the last year or so, have often been better than variable rates (get your head around that one?!). Fixed terms can range from 2 years up to 10, and with new products coming and going all the time, it’s not uncommon to see fixed periods for even longer. Most borrowers don’t like tying themselves in for this long however, as there are usually sizable repayment penalties should you wish to pay it off or remortgage again within that time.
In exactly the same way as fixed rates, most tracker rate mortgages have an initial period where you are tied into a contract, with penalties to pay if you leave early (early repayment charge, ERC). When calculating the total cost over the initial period, you must also factor in the probability and risk of any rate rises during that time – obviously if you have a tracker the same rate as a fixed rate over 2 years, then it makes sense to go for the fixed to avoid it increasing. If you don’t think rates will change in that time, and the tracker is a lower rate, then maybe it would be the best choice. It really comes down to personal preference and how able you are to sleep at night knowing rates could jump in the morning!
This really is a personal choice and not something that can be decided by reading something you found on the internet. Over the past few years, fixed rates have competed well against trackers and often come out cheaper, but this may not always be the case. If you like to know where you are in your payments every month, and think you may feel uncomfortable on a rate that could go up or down, then a fixed would be best – even if after 2 years it works out more expensive, because in reality no-one knows what’s going to happen with rates, and it’s a gamble either way. If you fix instead of a cheaper tracker and rates don’t move over the contract period, it’s cost you more – if you take a tracker for cheaper but rates go up, it may cost you more. Best to stick to what you know and feel as comfortable as possible throughout the term.
The term you choose to have your remortgage for depends mostly on your current financial situation in general, including your monthly budget and any projected changes in earnings as you move through the term. 25 years is a standard benchmark, as it tends to sit most comfortably all round for those who take a new mortgage – 35 years seems like a long time, and not many people want to be paying a mortgage into retirement.
However, if you are young and expect to be earning a lot more in the coming years, then taking a longer term to have a cheaper monthly payment now, may seem like a much better option. Generally though, if you have set a sensible budget from the outset, then it would be best to just adjust the term around that.
So for instance if you have £650pm to spend on your mortgage, and that equates to a 22 year term, then it may be best to have 22, rather than going for 30 just because it’s cheaper month to month, remember you’ll only be paying the interest for longer!
There’s all sorts of reasons why people want to remortgage and borrow additional funds on top of their mortgage. It may be to raise capital to buy a new property, it may be a remortgage to gift some money to family, a remortgage to pay off debts, a remortgage to put money into a business, a remortgage for a special purchase like a car or bike, or a remortgage to fund a special occasion like a wedding or big holiday.
Whatever the purpose, lenders all have a different opinion. Some remortgage lenders that allow for family gifts, don’t accept remortgages for debt consolidation. Some remortgage lenders that accept business purposes, don’t allow people to remortgage for a holiday. Comparison tables are great for finding good rates, but poor at letting you know which lenders will accept you and which won’t. This is why talking to experts who deal with the whole market is important, because although certain lenders may turn you away, others would welcome you with open arms.
There are alternatives to remortgaging. Because a main mortgage as a 1st charge is a regulated product, this means the criteria for lenders is often much more strict than for other non-regulated products such as buy to let mortgages, homeowner loans, secured loans and other 2nd charges. This means that if you have been declined for a mortgage when you want to borrow more money, there are other options to consider. It may then be possible to get a remortgage if self employed or a remortgage with bad credit.
It is more than possible to remortgage if you’re self employed or obtain a secured loan if you’re self employed Certain lenders, although sometimes more expensive, will lend money using just last 6 months bank statements – no accounts or lengthy trading history required – in fact, if you have the equity in your property, you may even be able to get a self-cert remortgage with no proof of income required at all. It’s true, that self-cert main mortgages no longer exist, but these types of self-cert secured loans are definitely available, you just need to know where to look!