Homeowners are finding the prospect of remortgaging increasingly appealing as they come to the end of their mortgage term, whether that be a fixed or variable rate, such as a tracker. Rebekah Commane finds out what is involved when a borrower wants to remortgage
One in five homeowners has said they will shop around for a better mortgage deal when their current mortgage product comes to an end, according to recent research. This is a turnaround since August last when remortgaging levels fell to a 12-year low.
With the cost of two-year products having dropped by 19 per cent since 2010, and five-year products down 32 per cent, it’s little wonder consumers are hopeful of saving money on their mortgage deal.
Anyone who has an existing mortgage can look into remortgaging, so long as they meet the criteria set by their new lender. And any financial adviser will, of course, recommend doing plenty of research well-ahead of the end of your existing mortgage term.
Why remortgage?
Marc Page, director of Lloyds TSB mortgages, and Phil Cliff, director of Santander mortgages, explained to What Mortgage the reasons why people might consider a remortgage and how to ensure you get the best deal for your circumstances.
“Our research shows that more than two-fifths of homeowners who are considering remortgaging are doing so to save money by benefiting from a lower interest rate (44 per cent),” explained Page.
“A further two-fifths are remortgaging because their current deal has come to an end, whilst a third are considering remortgaging to take advantage of the good deals currently available.
“As well as saving money on their monthly payments, many people also remortgage in order to raise additional equity from their property, for example, to fund home improvements. Some customers may also remortgage to change the type of mortgage they have, such as converting from variable to fixed interest, or from interest-only to repayment.”
Timing
Page explains that Lloyds TSB generally advises customers to review their mortgage annually if they are not tied into their current deal.
“The most natural time to remortgage is at the end of the mortgage term, when rates generally go onto a standard variable rate (SVR) or when early repayment charges are no longer applicable.
“By our calculations, a customer on a typical SVR of 4.38 per cent, based on a £100,000 loan, would have a monthly mortgage payment of £549. If the borrower switched to a remortgage rate of 3.34 per cent with Lloyds TSB, their payments would drop by £57 to £492 per month. Over a term of five years they would save at least £3,418 on a fixed rate compared with the SVR.”
Cliff of Santander said now would be a good time to consider remortgaging as rates are “historically low”.
“Many customers assess their options shortly before their current product matures, such as two to three months before the end of a fixed rate, but should always check what is available from their current lender as an existing mortgage customer, for comparison.”
Negative equity
For those who are seeking to remortgage, but find that the value of their property has decreased, there are options. Page advises that many lenders will offer their existing customers new deals.
“Depending on individual circumstances and on how close a customer is to the next loan-to-value banding, using any savings they may have to pay off some of their mortgage may give them access to better deals. A mortgage adviser can help them to understand whether this is the right option for them.”
Cliff added that not all customers whose properties have decreased in value will be in negative equity.
He explained: “Much depends on their original loan-to-value, for example. Mortgage customers should always talk to their lender in the first instance about their individual circumstances to find out what is available.”
In response to a question relating to remortgage options for those in negative equity, Page said that Lloyds TSB offers an Equity Support Scheme which makes moving home possible for customers with no or little equity.
Expanding he said: “It is designed to maintain momentum in the market and allows borrowers to move to a property of the same value, buy a bigger home or downsize. Customers can move without increasing their existing levels of borrowing and channel any additional funds into their new home.”
Application requirements
In terms of what documentation will be required for a remortgage application, Cliff informs that the same information will need to be supplied as when applying for an initial mortgage. “This includes evidence of earnings (wage slips), bank statements, ID, details of repayment vehicles in place for interest-only loans.”
Cliff suggests that remortgage levels may remain subdued compared to historic levels: “One of the factors here is that many lenders have either exited or reduced their appetite for interest-only loans, so some of those customers may find it harder to find a suitable remortgage deal. Santander does still accept interest-only remortgage cases.”
Referencing figures released by the Council of Mortgage Lenders, Page said there were some signs of improvement in the remortgage market, with a 7 per cent increase in activity between the third and fourth quarter of 2012.
“With current mortgage interest rates at record lows, we are expecting an increase in remortgage levels during 2013.”
Figures from the Council of Mortgage Lenders show remortgage approvals totalled £46 billion in 2012 – down 8 per cent on the £50 billion recorded for 2011 but 5 per cent higher than the £44 billion in 2010.
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