There are numerous factors which impact the trend and number of remortgage applications, but the most obvious is underlying base rates.
The idea is simple, if UK base rates are near their historical low, as they are at the moment, this will drag down headline mortgage rates.
For those who have taken out mortgages over the last 20 years, there is probably the potential to reduce the headline interest rate, reduce repayments and maybe even introduce an element of equity release.
We will now take a look at the remortgage application process and the factors which mortgage lenders will take into account.
Monitoring Your Mortgage
Statistically, while the average mortgage will last between 20 and 25 years, the majority of people will look to remortgage between every two and five years. Even though we have seen a growing trend towards longer-term fixed mortgage rates, up to 10 years and above in some circumstances, traditional offers only tend to last up to 5 years.
Therefore, it is possible to have a number of different mortgage providers during a traditional 25-year term.
However, in reality, the vast majority of mortgage providers will do all they can to retain your business which might include matching the best rates out there at the time.
Do not discount your existing mortgage lender no matter what the scenario!
Value Your Property
The first thing to do before you even consider a remortgage is to get an up-to-date valuation of your property.
There is no point comparing and contrasting your property with one that sold down the road just a few weeks ago; you need an individual property valuation for your home.
At this point, once you confirm the outstanding balance on your mortgage, it will become clear whether firstly it is possible and secondly whether it is worthwhile.
Check Your Existing Mortgage
Even though there have been significant changes to the UK mortgage market in recent years, with the removal of some unfair charges and penalties, you will still need to check the terms of your mortgage agreement.
It may be that you have to give a certain notice period; there may indeed be excess charges or other fees which could impact your way of thinking.
You need to be fully aware of any potential consequences of remortgaging your property.
Before you contact one of the many mortgage lenders available today, there are numerous websites and online tools which will give you an indication of whether you can afford a remortgage on your income.
In order to carry out the affordability check, you will need details of your household budget, income and debts.
These online tools allow you to adjust the level of potential borrowings to find a comfortable position for your income.
Get a Lending Decision/Searching for a Suitable Remortgage
The Internet is now an integral part of the UK financial sector, especially when it comes to mortgages.
You can now apply for a remortgage online and obtain a decision in principle which would then need to be clarified when the lender was in receipt of your full details.
Remember, at this stage, this is just a decision in principle as there are still numerous checks to complete, one of which will be your credit rating.
Search for a Suitable Remortgage
There is no doubt that the Internet is very important to those looking for products and services, and it is no different with regards to remortgage offers.
The Internet allows you to compare and contrast different deals at your convenience, although you must take into account terms and conditions (the small print).
Interestingly, many people will use some of the more competitive deals available to encourage their current mortgage provider to match the terms.
This has the benefit of keeping your business in-house while hopefully avoiding any delays and excessive charges for setting up a remortgage.
Here at The Mortgage Bank we would still recommend using a Mortgage broker who can provide you with a full market quote.
Apply for Your Remortgage
This is D-Day, the moment when you apply for your remortgage, the moment when all of your numbers are crunched and put through the system.
In the majority of cases where a deal has been agreed in principle, you will likely receive a firm offer. This is where you need to take into account headline rates as well as the terms and conditions.
The traditional mortgage process can take weeks, although if it is fairly straightforward, and with your original lender, this timescale can be cut significantly.
The following table shows the top 10 most important factors when choosing a mortgage deal: –
|Most important factors when choosing a mortgage deal||%|
|Size of the loan||35%|
|Ease of application process||34%|
|Early repayment fees/exit fees||24%|
While the process of applying for a remortgage is fairly simple, there are many issues to take into consideration which we will now cover.
Reasons to Remortgage
In theory, there are many different reasons as to why you might look to remortgage your property.
We will now take a look at some of the more common reasons given to mortgage lenders: –
Expiry of Current Mortgage Deal
One of the more common reasons to remortgage is simply because the end of a 2 to a 5-year deal is just around the corner. It will obviously depend on the scenario at the time.
Still, the majority of people will automatically switch to their lender’s standard variable rate, from a fixed rate, and probably see a significant hike in monthly repayments. It is also worth noting that far too many homeowners leave it until the last minute to remortgage their property.
As a consequence, many will be switched to the higher standard variable rate on their old mortgage while a new one is being negotiated.
The idea of switching to a standard variable rate in the short-term may not sound too onerous, but what happens if you are unable to organise a remortgage?
What happens if there is a sudden deterioration in your financial situation? Fail to plan, plan to fail; that just about sums it up – always look ahead!
Improvement in Financial Circumstances
While we often hear about people struggling to repay their mortgage, placing their home in danger, there are occasions where your financial circumstances may improve.
As any mortgage offer is very closely related to your specific financial circumstances, any improvement in your situation could be the catalyst for a remortgage.
If there has been a significant improvement in your finances, assuming interest rates have not moved too much, then you may be able to negotiate a better headline interest rate and even loan to value (LTV) ratio.
This could create a double whammy by reducing your monthly repayments and potentially allowing you to release any equity in the property.
Obviously, this will be dictated by the LTV, property value and your current financial situation. However, if you don’t ask you don’t get!
Increase in Property Value
Statistics show the long-term trend in property prices tends to be positive due to a growing population prompting ever-growing demand for property.
It is therefore quite probable that many people will see a significant increase in the value of their property in the longer term. This may allow them to remortgage, releasing equity, to pay off additional high-interest debt, etc.
There could potentially be the double whammy of an increase in property value and a significant reduction in overall finance repayments.
When you strip the mortgage application process down to the bare basics, it is simply related to the risk/reward ratio.
Those with a greater risk attract a higher interest rate while those with a reduced risk will attract a lower rate. Make sure you use your strong hand wisely.
Switching Mortgage Types
One of the other common reasons for remortgaging is to switch between fixed, variable, capped and tracker rates. For example, if you took out a mortgage in the past when interest rates were relatively high, but expected to fall, then you may opt for a standard variable rate.
Opting for this type of arrangement will ensure that you benefit from any fall in interest rates although you would see a similar result if opting for a base rate tracker mortgage.
However, when mortgage rates hit rock bottom, you may well take the opportunity to switch to a fixed-rate which usually lasts between two years and five years.
There is no suggestion that you should switch mortgages on a regular basis, as this could impact your credit rating, but just be aware of the options.
Plan ahead and have an idea in your mind where you want to be and what you think may happen. When considering such options, it is probably sensible to take professional financial advice.
Switch to a Flexible Mortgage
In the modern era, there is no such thing as long-term employment stability; therefore, you may switch jobs, you may switch careers, or you may even go self-employed.
For those facing potentially significant long-term employment changes, it may be sensible to look at a flexible mortgage. These arrangements tend to tie-up your current account with your mortgage account, thereby saving on interest charges by offsetting.
There may also be an opportunity for mortgage holidays, reduced payments or even overpayments.
Many people prefer the less strict payment schedule of a flexible mortgage.
However, due to the fact they are not widely available, there tends to be less competition regards terms and conditions as well as headline mortgage rates.
However, if you shop around, there are numerous mortgage lenders who would consider your application.
Whether you are looking to pay off debt, take advantage of an attractive investment opportunity, carry out home repairs or just prefer to have some funds set aside for a “rainy day”, remortgaging could well be an option.
As long as you pass the affordability test, there is no reason why you should not be able to arrange a more competitive mortgage.
In the event that the value of your property has increased, there may also be the opportunity to release some additional equity.
Is a Remortgage Right for You?
As we touched on above, there are numerous factors to take into consideration when looking at a remortgage.
For example, you might think twice about a remortgage after reviewing the following issues: –
Relatively Low Outstanding Balance
In this scenario, it may not be cost-effective to remortgage when taking into account setup fees, etc. associated with a new mortgage agreement.
As we mentioned above, while regulations have tightened with regards to unfair redemption penalties, they still exist.
High Loan to Value Ratio
As you will see from varying LTV ratios, there is a very high correlation with the economy.
Therefore, it is possible that your current mortgage was taken out on a higher LTV than the rate available today.
Deterioration in Personal Circumstances
Those considering a possible remortgage tend to look at the headline interest rates, terms and conditions before anything else.
The affordability factor is a major issue, and if your personal circumstances have deteriorated since your original mortgage was taken out, you may struggle to qualify for a competitive remortgage.
Using Additional Collateral
As we get older, it is not uncommon to accumulate additional assets of significant value. This may be as a consequence of investment or even an inheritance.
The key to long-term financial success is to utilise all income streams and all assets in a controlled manner.
As a consequence, all things being equal, you may have an opportunity to negotiate a better rate on your mortgage if you have additional collateral available.
Some of the more common types of collateral used include: –
- Pension fund
- Investment portfolio
The idea is relatively simple, the greater the difference between an outstanding mortgage and assets/collateral, the greater the insurance policy for the lender.
Where there is less risk, this reduces the risk/reward ratio, thereby allowing the lender to offer a reduced rate.
What kind of a discount you will be able to negotiate will also depend on other factors.
Seeking Financial Advice for a Remortgage
There is an age-old argument as to whether you need to employ the services of a mortgage broker or simply go it alone. Much of the potential value associated with using a mortgage broker would be down to your individual circumstances.
However, on the whole, it has to be said that mortgage brokers tend to be able to negotiate better rates than individuals with limited/no experience of the industry.
As you would expect, there are a number of angles to consider, such as: –
There are two different types of mortgage brokers, independent mortgage brokers who have access to the whole market and others who are tied to specific lenders.
The obvious assumption is that an independent mortgage broker should be able to negotiate the best deal. In reality, this is not always the case. A tied broker may have access to a smaller group of individual lenders, but their close affiliation may give them greater scope for negotiating improved rates.
So, while many people prefer to go with independent mortgage brokers, you should not necessarily discount tied mortgage brokers. What is stopping you talking to both of them?
Type of Lenders
As you might expect, the mortgage lending market is huge and able to accommodate sub- £100,000 houses and those who go for tens of millions of pounds.
In reality, there are three different types of mortgage lenders, traditional mortgage lenders such as the high street banks, private banks which often operate away from the mainstream market and niche lenders who specialise in specific areas – for example, buy to let.
So, if you have a slightly complicated financial structure, then a private bank, often seen as more flexible, maybe a more suitable option for you.
Therefore, there would be no point approaching a mortgage broker who only has access to traditional high street lenders.
In a similar fashion to different lenders specialising in different types of property, the same applies to mortgage brokers. Some brokers may specialise in high net worth individuals, others mid-market properties, or some may even focus on specific products such as the buy to let market as one example.
Therefore, it would make sense to approach a mortgage adviser that has experience relevant to your particular situation.
When reading these issues to consider, they may seem obvious, but sometimes it helps to see them in front of you.
We have seen a major overhaul of the mortgage industry, indeed the whole financial industry, over the last 20 years or so. While the “Big Bang” event for the financial sector can be traced back to the 1980s, there is still an ongoing adjustment in regulations.
Historically mortgage brokers have attracted negative publicity over the subject of commissions and how this might influence their advice.
The situation today is very different because mortgage brokers will either take payment from their client or a commission from the lender.
Either way, the terms and conditions of the advice and mortgage negotiations will be set out at the very beginning to ensure there are no misunderstandings.
When you consider that mortgage brokers will live and die by the standard of advice given to customers, manipulating advice in the short-term would be counter-productive in the long-term and commercial suicide.
Preparing for a Remortgage Application
It certainly pays to look forward when it comes to any financial transactions and especially in the case of remortgaging.
We see far too many individuals waiting until the last minute to remortgage their properties in the hope/expectation that it will take literally days to complete.
However, when you take into account property valuations, meetings with lenders, credit checks and additional paperwork, this can take time.
Reviewing Your Finances
By planning ahead, you can review your finances and see if there are areas where you may be able to adjust spending to improve your short-term financial strength.
It may be that your next annual pay review will result in a significant uplift which can only help your mortgage affordability calculation.
This perfectly illustrates how important it is to plan ahead and give yourself time to not manipulate, but give yourself the best opportunity to show your finances in the best light. You may only get one chance!
Monitoring the Market and Economy
It may seem a little far-fetched to suggest that those looking towards a remortgage should take time to monitor the property/mortgage market and economy.
The fact is that there is more than enough financial comment on the Internet and in the mass media to give you an idea of the short to the medium-term direction of not only the economy but more importantly base rates.
It is also useful to have an understanding of the mortgage market and indeed try to spot any trends in the short-term, which may assist your application.
Where you decide to take mortgage advice from a third-party, you should make full use of the Internet and the ability to read feedback and comments regarding individual mortgage advisers/brokers.
While word-of-mouth is probably the best recommendation, you can expect this is not always possible.
However, there is no hiding place on the Internet, and after looking at numerous reviews, you will soon get an idea of the standard of advice/service offered.
While there tends to be a significant increase in remortgage applications when base rates and mortgage rates are low, the reality is that remortgages happen on a regular basis for numerous reasons.
The most common reason is the expiry of a mortgage offer period and an impending switch to a standard variable rate.
The key to negotiating a successful remortgage is to plan ahead, monitor the market and rather than leaving your research to the last minute, start preparing weeks if not months in advance.
Many of those looking to remortgage will employ the services of a mortgage broker while others prefer to go it alone or take limited financial advice.
It will depend upon your experience and confidence in negotiating the best deal as to which option is best for you. There is no one size fits all when it comes to remortgaging as the value of property, income, collateral, and personal circumstances can be very different.
However, unless you have strong knowledge and experience of the mortgage market, it would be sensible to take advice.
How Can The Mortgage Bank Help?
Here at The Mortgage Bank, we have partnered with some of the UK’s leading mortgage brokers.
They have already helped thousands of people get the best remortgage deal even people that have been refused before, and they can do the same for you.
Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.
If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.