Remortgaging onto a new product could save you money if you are coming to the end of your current deal. With experts predicting that a rise in interest rates is around the corner, now could be the time to secure a fixed rate product. Rebekah Commane looks at the main factors to consider in your decision
If you are coming to the end of a mortgage term, you may benefit from moving to a new deal that would better suit your financial needs. This process is known as remortgaging.
With interest rates at historic lows, and a hike muted for next year, many mortgage holders have sought to move onto fixed rate deals to lock in the best offer on the market before prices rise. In fact, homeowners borrowed more in August than at any time since the 2008 economic crash, according to the British Bankers Association.
There are many reasons why you might look to remortgage – you may want to raise money for a project, such as home improvements – but most borrowers simply do so to save money.
So long as they meet the criteria set out by the lender, anyone can remortgage and it’s advisable to review your mortgage terms and repayments annually to ensure you are getting the best value for money.
Broker benefits
The market is saturated with products, rates and fees and it can all be quite confusing to get your head around. As committing to any long-term financial contract is a decision that shouldn’t be taken lightly, it is advisable to seek expert advice if anything about the complexities involved in remortgaging is unclear to you.
However, Bernard Clarke, communications manager at the Council of Mortgage Lenders, explained that you do not need a broker to secure a new mortgage deal.
“It’s up to you whether you use a broker,” he told What Mortgage. “If you don’t understand mortgages, you should seek independent advice. Brokers know the market and are likely to be able to help you get a mortgage that best suits your needs. But you can research the market yourself – there are plenty of helpful sources of advice and information about products.
He added: “Many lenders are happy to deal directly with you as a customer – and may not even accept business through brokers.”
Suits you
Clarke said that the most important thing to consider when looking into remortgaging is that you are getting a product that fits your needs.
“You need to think carefully about your own personal circumstances, how they might change and whether anything might affect your continuing ability to pay,” he said.
“You also need to understand the options available and all the features of any mortgage you’re considering.
“The good news is that mortgage rates are at an historic low point, so there are good deals around, but don’t rush it if you’re not sure.”
Clarke pointed out that remortgaging onto a fixed deal – for two, three or five years – can help with budget planning, particularly if monthly repayments account for a large part of your income and you’re on a tight budget.
“But you shouldn’t just ignore variable or tracker rates,” he advised. “They may be cheaper now – although they could cost more if the base rate rises.”
When it comes to whether remortgaging is always a good financial move for homeowners, Clarke points out that it is down to individual circumstances.
“It may not be a good idea to remortgage if there are charges for early repayment of the loan and you expect to move or repay the mortgage early for some other reason,” he explained.
Affordability
In April 2014, the rulings of the Mortgage Market Review (MMR) came into effect, meaning that lenders now have full responsibility for assessing whether a customer can afford a mortgage or not. This means that the application process for taking out a new mortgage will be more stringent than the first time you took out a mortgage, assuming this was pre-MMR.
“There are now much more prescriptive rules that lenders have to follow in assessing affordability, so they will ask detailed questions about your income and spending commitments,” said Clarke.
“Lenders also have to ‘stress test’ your affordability against the base rate rising by 3 per cent, unless you are fixing your mortgage for at least five years.”
A stress test basically assesses whether a borrower could still afford the loan if the interest rate were to rise by 3 per cent.
A spokesperson for Nottingham Mortgage Services (part of Nottingham Building Society) added that many details of an individual’s expenditure are now also taken into account, post MMR.
“Along with income – lifestyle, credit commitments and dependents now all have a bearing on the amount lenders are prepared to lend – some also deduct pension contributions from affordability,” said the spokesperson.
“Each lender has interpreted affordability guidelines differently since MMR so it definitely isn’t a one rule fits all scenario.”
All mortgages have a limit to how much you can borrow versus the current value of the property. This is shown as a percentage and is known as the loan-to-value, or LTV.
To calculate the loan-to-value of your property, divide the amount outstanding to pay on your mortgage by the current value of your home and multiply that figure by 100.
Debt management
Some mortgage borrowers may consider remortgaging to pay off debt, but whether this is a good move or not is dependent on circumstances.
The Nottingham Building Society advises that it is generally not a good idea to do this as you are securing what is usually unsecured debt against your home, which could put it at risk, but adds that it could also have the opposite effect.
“Sometimes it is a way of protecting the home if the unsecured debt has become unmanageable and the drop in monthly cost by putting the debt over a longer term helps with disposable income. Other avenues should be explored first though and clients must realise that although the monthly cost will drop, the actual true cost of the debt will increase as more interest will be payable over a longer term.”
Costs
Finally, one of the most important factors to consider when remortgaging are the costs associated. Some lenders offer fee-free deals but others could add on valuation fees, legal fees and arrangement fees – particularly on fixed rate products.
Remember to offset the costs of remortgaging against the amount you could potentially save to ensure the move is worthwhile.
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Case study: Family’s home delight at securing a remortgage
Dance teacher Emma Reeder found getting a new mortgage a difficult move to perform until she spoke to Nottingham Mortgage Services (part of Nottingham Building Society) who helped get things in full swing.
The 29-year-old from Derby originally had a sole mortgage on the home she shares with partner Matt, who is digital content manager at Derby County Football Club. Following the arrival of their daughter Martha, now 20 months, and wedding in April 2015, the pair wanted to get joint names on the mortgage paperwork for their semi-detached family home in leafy Breadsall Hilltop. The house formerly belonged to Emma’s late grandma.
Emma visited a mortgage adviser she had seen previously, paying just under £100 in doing so. She explained how she wanted to remortgage with Matt, 34, and draw down some equity in the process, to consolidate some small debts and cover the cost of home improvements.
But the visit to the adviser drew a blank – which left the duo frustrated and thinking they may have to wait a while longer to fulfil their mortgage dreams.
Emma’s dad suggested speaking to family friend Helen Crowther-Dowey, a Nottingham Mortgage Services whole of market mortgage adviser based at the society’s Long Eaton branch. Within weeks, the Reeders were putting pen to paper on a mortgage that suited their needs.
Emma takes up the story: “Our lives were starting to take shape – we had welcomed Martha into our family and got married. It made sense to put the house in both of our names and we were really excited about the prospect, so it was frustrating when it didn’t happen initially.
“Everything changed around so positively when we went and met Helen. From the off she put us at ease as she explained she would do everything she could. Doors started to open that had previously been shut in our face.
“I am self-employed and had been told that could be a problem but when we went through our financial situation and what we were looking for from the mortgage, Helen reassured us that there could be options – and there were.
“She answered all of our questions and went above and beyond with an excellent level of customer service. I remember emailing her a query one day and getting her ‘out of office’ reply back. I presumed she was on leave and I’d have to wait a few days but within minutes I got a reply from her. That is truly going above and beyond.
“Helen talked us through our options having searched across over 40 lenders and we were delighted to secure a mortgage that suited us perfectly.
“I have already recommended Nottingham Mortgage Services to a friend of mine who was close to paying nearly £500 in broker fees elsewhere.”
The Reeders now have a 33-year NatWest mortgage with an initial two years fixed at 2.43 per cent.
Matt adds: “It was always our aim, once Emma’s original fixed rate period had expired to change the mortgage. During that time we had Martha and got married. We have become a family and the icing on the cake is that we have been able to secure a joint mortgage.
“In a day and age where excellent customer service is rare and sales people are often only interested in their next sale or commission, Nottingham Mortgage Services whole of market offering is great. We were put under no pressure whatsoever and were taken through things step by step. I would highly recommend it.”
For more information about Nottingham Mortgage Services call 0344 481 0013, visit a branch or go to www.thenottingham.com/mortgages.
*Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage. Be aware that house prices can go down as well as up.
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