The Question
Our mortgage is due for renewal in October. My husband is self-employed, but his business hasn’t done well in the last 18 months, I think this may mean we cannot look elsewhere for a new deal.
We are with NatWest, and I can remortgage with them but at a higher interest rate. However, I am not sure which option to choose. Should we fix in for two years or five years or should we take the interest-only option?
Darren’s Answer
There are a couple of questions within this – let’s look at your remortgage options first.
You are correct, you can switch to a new rate with your current lender (NatWest), which would be classed as a rate switch or product transfer.
The benefits of this are that there is almost never a credit score or a need to provide proof of income as the lender has already assumed the risk with your current mortgage.
A valuation will not be required either as the lender will have their own internal valuation of the property, which can mean your loan-to-value (LTV) is positively impacted by the lender’s valuation rather than market value. This could result in a better rate at this LTV bracket.
If you choose to remortgage to a new lender and secure a (potentially) lower rate, this would effectively be a new mortgage application which can incur legal costs and other set-up fees (your broker can ensure free legals and free valuation with certain lenders).
Some lenders also offer cashback deals for remortgage cases. There will be a credit scoring application and a full income / expenditure assessment.
Lenders’ rates
Now to your question about rates. Lenders’ rates are changing frequently at the moment, and I am pleased to say they are going in the right direction – down!
Currently average five-year fixed rates are lower than two-year deals, which will give you peace of mind for the longer fixed period. However, if rates do come down further, you may have ‘buyer’s remorse’ with the thought that you might have secured a lower rate.
While nobody can guarantee what rates will do, many economists and market experts are predicting that rates will come down further over the next 18 months. That is still a long time though and a lot can happen before then!
You also need to consider any life events you may have which may impact your length of fixed rate.
Interest-only mortgages
Interest only mortgage deals may seem a good option in terms of your monthly payments, however you will need to evidence a repayment vehicle to pay this portion of the mortgage at the end of the term. Lenders will require this, and it is important to not that you will not be reducing the capital of the mortgage, only paying interest.
In summary, whatever remortgaging option you eventually settle on, it’s best to consult an experienced broker who can provide an assessment of your remortgage options and give you the best rates on the market for your circumstances.
Meet our expert…
Darren Polson is head of mortgage operations at Aberdein Considine. He has been writing a regular column for What Mortgage for over two years and is now here to answer YOUR questions.
If you have a question for Darren please email kate.saines@emap.com or leave a message in the comments below.
