As we approached the summer months there was a feeling that we could perhaps look forward to a more stable mortgage and housing market – but it looks like we aren’t there yet.
As has been written about significantly, mortgage rates spiked following the disastrous mini budget last year and whilst they seemed to have a reached a peak, at the time of writing, many lenders have again temporarily withdrawn deals for new customers. More deals will be introduced but are likely to be at higher rates.
Of course, this is a big issue for first-time buyers and those moving home however the biggest impact is probably going to be felt by those whose mortgage deal is due to expire. In short, rates are again rising, albeit not at the same rate as they were last year.
Rising rates mean rising monthly costs for borrowers but there are options which could provide some insulation such as speaking with your lender about increasing the term of the mortgage to try and reduce the monthly increase.
In addition, remortgaging could also be a serious option to help raise money for things such as home improvements or debt consolidation.
Like all other aspects of financial planning, especially when it involves large sums, you should take advice, either from an independent mortgage broker or financial adviser.
This can help you establish whether it’s the right decision for you and indeed whether you can afford the extra amount over the full mortgage term.
When should I consider remortgaging?
Typically, you will have up to six months before the end of your mortgage deal to secure a new one.
Most rates in the UK will have an expiry date and can last for two, three, five, seven and 10 years, whether this is fixed or variable.
You can remortgage at any time but in order to avoid any Early Repayment Charge (ERC) this is normally towards the end of your existing mortgage deal.
If you choose not to review your mortgage deal before it ends it is likely that your lender will move you on to their Standard Variable Rate (SVR). This could mean that you end up paying more as in most cases the SVR will generally be higher than the rate you were on.
At the end of this initial period you have an option to remortgage to a new lender or complete what is called a product transfer if you remain with your existing lender.
An independent mortgage broker can secure a deal for you and ensure the transfer is completed when your deal expires – this will ensure that you are not liable for an early repayment charge.
What factors will influence my remortgage?
As you can imagine there are a number of factors to consider such as whether your property is worth more than when you bought it and consequently your loan-to-value (LTV) has changed. [Editorial note: LTV is the value of your home minus the equity and is shown as a percentage.]
This could mean you have access to a wider range of deals.
It may also be that big changes have occurred in your life, whether planned or unexpected, and this might well mean that the mortgage product you had is no longer suitable.
If you do have a significant change to your income or outgoings, or both, remortgaging can provide the opportunity to find a deal which is more tailored to your requirements.
There are two type of mortgage solutions for those switching to a new deal. A product transfer and a remortgage. It’s important to note that there are some key differences between them.
What do I need to know about product transfers?
If you take out a new mortgage but it’s with your current lender, this is known as a product transfer and requires no additional legal work.
In most circumstances, there is no requirement for additional documents. However, some lenders allow you to change prior to the end of your current deal (not so popular now given the rate increases).
How does remortgaging work and how does it differ to a product transfer?
When remortgaging, you are effectively applying for a new mortgage with a new lender.
This requires an application with credit score and documentation such as income verification.
This will also require you to have a solicitor or conveyancer, to help with the legal side of things.
As this is a new application, it is always advised you manage your credit carefully before applying and try not to apply for new forms of credit
The process typically takes four to eight weeks after applying – the amount of time needed will depend on your individual circumstances.
What should I consider before switching to a new mortgage deal?
As ever, before you make any decisions, think carefully about making any changes.
Remember, a mortgage is likely to be the biggest financial commitment any of us will ever make and one which will be
with us for much of our working lives.
If you are approaching the end of your mortgage deal, or just looking for guidance on what to do next, seeking advice from an independent mortgage broker could save you time and money, and lots of it.
Darren Polson is head of mortgage operations at Aberdein Considine
