The volume of mortgage holders choosing to switch to better deals has increased by almost 50 per cent in the past year due to the range of record low loans available. Rebekah Commane looks at how and why remortgaging your property might be right for you
With mortgage interest rates currently at record lows, now could be a good time to consider remortgaging on to a better deal, particularly as the Bank of England base rate is expected to rise from next year, which will have a knock-on effect on your loan repayments.
Anyone who has an existing mortgage can look into remortgaging, so long as they meet the criteria set out by the lender. And, as always, it’s recommended to not only speak to your current mortgage provider but to find out what other lenders have to offer and shop around for the best deal.
It is advisable to review your mortgage deal annually, if you don’t have a fixed loan or if you are coming to the end of a fixed term, to ensure you are getting the best possible value for your money.
The figures say…
The most recent data from conveyancing firm LMS showed that remortgage lending became increasingly popular in the UK in the early months of this year, up 48 per cent in February compared to the same month last year with the value of each loan also increasing, up 8.6 per cent in the year to £155,616.
LMS chief executive Andy Knee said the fact that the size of the average remortgage loan has reached record heights reflects rising incomes and lower interest rates, making the deals more affordable for consumers.
“Customers are poised to take advantage of these competitive rates that are currently available, with more than one in 10 of people remortgaging (11 per cent) able to reduce their monthly payments by £200 or more,” Knee added.
Alan Cleary, managing director of intermediary-only mortgage provider Precise Mortgages, spoke to What Mortgage, providing insight on the reasons why homeowners may choose to remortgage, when is a good time to do so and how to go about it.
“The two main reasons for remortgaging a property are to get a better deal and/or raise more money from it,” said Cleary. “Many homeowners may be paying their lender’s standard variable rate, which in some cases is as high as 6.5 per cent. If your interest payments are higher than some of the deals available today, a remortgage could represent a significant monthly saving.”
Home improvements
Cleary explained that some homeowners may want to raise money from for home improvements or other reasons and remortgaging can allow for this.
“A remortgage can be an efficient way of raising the funds but you must be aware that you are giving your house as security against those extra funds.
“Under new rules mortgage brokers and advisers must also consider whether there are better options other than remortgages, such as second charge or unsecured loans.
“The best bet is to seek the advice of a qualified mortgage broker who will check all available options.”
With remortgage interest rates at historic lows, Cleary points out that now is a good time to look into getting a new mortgage deal as there are plenty of products available for remortgagers.
“Many remortgage products have no valuation or legal fees, which reduces the cost of transferring lender, if you’re doing so,” Cleary adds.
“It is likely that rates over the next three to five years will be higher than they are today, so delaying might well cost homeowners more money.”
He explains that the return of consumer confidence has encouraged many more people to start borrowing again, along with an improvement in employment levels, which encourages homeowners to begin working on things they have put off, such as home alterations.
Accessible funding
“Secondly, the availability of mortgage funding has increased significantly over the last 18 months, largely as a result of government initiatives designed to revive the housing market; this has led to the number of remortgage products available increasing at the same level as rates have been decreasing.”
With regards to those whose properties have decreased in value, there are remortgages especially designed for consumers in these circumstances.
“Some lenders offer remortgage deals up to 95 per cent of the property value,” Cleary informed.
Negative equity
For those in negative equity, the options are minimal but Cleary advises speaking to your current lender.
“The best course of action for people in this situation who need to raise money is to speak to their existing lender to see if there’s anything they can do. For example, if there is work that needs to be done to the property that’s critical to its upkeep, the property owner’s existing lender may well be able to help.”
When it comes to the information a potential ‘remortgager’ will need to supply, the process is not dissimilar to applying for an initial mortgage.
As Cleary explains, consumers will need to complete the lender’s application process which will require details on credit history, proof of identity, employment details, or if the applicant is self-employed, details of past net profits.
“A property valuation will also be required, as will legal checks to confirm the property has good title. This is generally a straightforward process and there is always help available from local mortgage brokers or from bank or building society branches.”
Use a broker
The benefits of using a mortgage broker or adviser are well documented and, as Cleary points out, they source products from lots of lenders and tend to know which are the best deals for each borrower.
“I have been working in the mortgage market for over 20 years and I still use a broker,” Cleary reveals.
“As well as having information on the best loans, they do most of the paperwork for you and chase the lenders and solicitors to ensure a smooth transaction; this alone is a great timesaver.
“For people that are less familiar with the market, a mortgage broker can guide borrowers through the process and offer advice as to the best course of action.”
With more than 1,500 mortgage holders choosing to remortgage each day, it may be worth jumping on the bandwagon before interest rates begin to rise.
