Every month thousands of people in the UK come to the end of their fixed or tracker rate initial deals. If they were to do nothing at this point they would move onto their lender’s standard variable rate (SVR). This means monthly payments would rise – and most likely by a large amount!
The gap between the average maturing two-year fixed rate mortgage and lenders’ SVRs has now hit its highest level since February 2008, according to research.
Borrowers who opted for a two-year fixed rate mortgage at the start of 2017 are likely to revert to an SVR that is more than double their initial fixed rate, according to the Moneyfacts UK Mortgage Trends Treasury Report.
So, what are buyers’ options are at this time? And how will a good broker ensure clients get the lowest possible rate and keep monthly payments down? Let’s find out…
What is a remortgage?
Remortgaging is the act of switching your existing mortgage to a new deal, either with your existing lender or with a different provider. It typically means that you are not moving house and the new mortgage is still secured against the same property.
The more equity you have and the lower your loan-to-value (LTV) – the amount you are borrowing as a percentage of the value of the house – the more competitive the rates for which you will qualify will be.
A remortgage is not only for securing a new rate, however. There are various other reasons for remortgaging, some of which can also be considered at the same time as finding a new rate. These include:
- Releasing money for home improvement work to your property
- Fixing your mortgage rate for stability in your monthly payments and to protect against potential future interest rate rises
- Debt consolidation
- Releasing money to use towards a new property purchase, such as a second home or an investment property
When should I look into my remortgaging options?
Most lenders will keep a remortgage offer open for three to six months, so it is always important that you check the period for which the offer is valid before proceeding.
We contact our clients just before the six-month date prior to their current fixed or tracker rate ending, as this ensures the best option can be secured as early as possible. If mortgage rates rise, then this lower rate is already secured.
If you are currently on the lender’s SVR then you should review your remortgage options immediately. The chances are that you are currently spending a lot more on your monthly payments than you could be by securing a new rate.
How can a mortgage broker help with my remortgage?
Put simply, a good broker will ensure that you get the best possible deal and rate for your circumstances.
As such, it is important to look for a broker that has access to the majority of the lenders in the market. This means that all of the best options will have been looked at for you.
If you do move lender, a remortgage will mean a new application and along with it new affordability checks and paperwork requirements. A broker will be able to ensure only rates that work with your circumstances will be recommended to you.
They will also take care of a lot of the heavy lifting during the process. A broker will submit the application on your behalf and chase this through to the mortgage offer.
Once the mortgage offer is issued, if moving lender, a solicitor will be appointed by the lender to take care of the legal paperwork, and a signed deed will be sent to your new mortgage provider. They will then pay off your existing mortgage by sending funds to your current lender, and once the old mortgage has been repaid in full you will start making repayments to the new lender.
A good broker will help manage this part of the process for you also, as well as being able to guide you through your next steps throughout.
You may have read, in our recent article by managing director, Dom Scott, we recently relaunched our website link. I would recommend checking out the lenders page (we currently have access to over 100 so there are a lot of lenders from which to choose).
There is also a live product feed so that you can easily see some of the rate options you might want to speak to us about. Click here to go directly to our remortgage page.
What are the financial benefits of remortgaging?
Remortgaging can save you thousands of pounds in interest, as well as releasing some equity to pay for home improvements or other projects, as these Alexander Hall clients illustrate.
The clients:
George* and Sarah* are a married couple who moved into their new home two years ago. George is a web designer and Sarah is a self-employed graphic designer who works as a sole trader.
(*Names changed)
The scenario:
George and Sarah’s current fixed rate ends in five months. They have just over 20% equity in the current property. They would like to get a new fixed rate in place to ensure they do not go onto their lender’s SVR, which is almost 5% from their current fixed rate of 1.99%.
They would also like to redecorate their bathroom. All of their savings were taken up by the initial purchase costs so they have not had a chance to do this since moving in.
The solution:
We arranged a remortgage application with a new lender. This lender issues a mortgage offer for a six-month period, meaning the rate can be reserved but will not start until after the current fixed rate ends, to ensure there are no early repayment charges.
We also arranged an extra £10,000 for the home improvement work as part of the process, which will go into their bank account on completion of the remortgage.
- Property value: £400,000
- Loan amount: £320,000 (the current mortgage balance is £310,000)
- LTV: 80%
- Rate: 1.68% two-year fixed
- APRC: 3.9%
- Term: 28 years capital repayment
- Lender arrangement fee: £999 added to loan amount
- Mortgage payment: £1195pcm
If the clients had reverted to the SVR rate on the current mortgage of £310,000 the monthly payments would have rocketed to £1670 pcm.
This article was originally posted in What Mortgage online. You can see the original article here. Please note this will launch a new web page.
