Time to remortgage?
Many people have been reluctant to move their mortgage in recent years due to lenders' historically low variable rates and, in some cases, fear that a change in circumstances or even the tough market might leave them high and dry.
But in recent months three major players (Halifax, Santander/Abbey and RBS/Nat West) and several smaller ones have announced increases in their long term 'Standard Variable Rate' ('SVR'). This has sparked a media frenzy about rising homeowner costs, particularly when the Bank of England is not raising its own 'base rate'. But there are solutions available to mortgage borrowers.
It's important to point out the difference between 'SVR's or 'Discounted' Rates and 'Tracker' Rates. Both are variable but the former are determined by the lender which they can change when they want, while the discount rate just gives them a smaller margin for an initial period. A Tracker rate follows the Bank of England rate exactly at a set margin above (or even below it with some old products!). But with the Bank of England base rate still at 0.50%, and unlikely to rise in the near future, a Tracker is still possibly worth keeping if you can. But if you are on an SVR now is really the time to get professional advice and review your options.
Fixed rates have never been so low - but won’t last forever
It's a bit of a cliche, but in 20 years in the business I can safely say that Fixed Rates have rarely (if ever) been so low, but it's unlikely to stay that way because lenders buy 'tranches' of money from the markets at set rates which they then mark up and sell on to borrowers. It's a bit like a large pizza, slices are handed out and when the last one goes, the deal is gone. When they return to the money market lenders may pay more and even if they don't, if the previous 'tranche' sold out quickly, they may put a larger profit margin on the next one costing you more.
What to watch out for when remortgaging
Look out for set up costs and make sure you get a free valuation and free legal fees (as there is a legal process involved in moving lenders). A good broker will work out the cost of the whole package for you, together with its suitability for your circumstances and your compatibility with the lender (they all have individual rules and regulations on top of the standard ones and you don't want to fall flat because you've got the wrong type of property or you've not been in your job long enough, when this may not be an issue to another lender). No search engine will do this for you, but also find out how the broker gets paid. Many (ourselves included) don't charge fees for remortgages and receive what's known as a 'procuration fee' from the lender, this is simply the lender paying the broker what they would pay their own advisers broadly. The amount will be clearly shown on the 'Key Features Illustration' or 'KFI' any adviser will provide you with. If the broker does charge a fee, they may re-imburse you from the fee they receive from the lender. This can still be good for you so ask them the question.
When to remortgage
If you have a current deal with a lender, you should start looking into options at least three months before the deal ends. The legal process can take 6-8 weeks, so it should be in place for a smooth changeover. Some lenders offer good deals to existing customers, you can go direct or ask a broker about these. It saves the paperwork and reduces the timescale, it also works for those who cannot prove income or have minor credit problems (provided they are up to date with the mortgage repayments), as no assessments are usually made because the lender is not changing their level of risk.
Remortgaging to fund home improvements?
For those wanting to raise funds for home improvements or other purposes, remortgaging is usually the most cost effective way initially, but remember three things. You will need to prove you can repay the total cost of the new and existing mortgage amount, they will revalue your home in its present state, so you'll need to ensure you have enough equity to get the product and borrowing amount you want and you will be borrowing over potentially a much longer period than a personal loan, so it could cost much more in the long run.
To sum up
Whatever your circumstances, you should review your mortgage regularly and take whole of market or independent advice (if you just go to your bank, they will just tell you what they can do). Allow plenty of time and don't get hoodwinked by low headline rates, look at the overall costs.....and if you are on Santander's SVR?...talk to someone today!
Dean Mason - Cemap, Cert PFS.
Practice Principal
Masons Financial Planning
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