15 min Read
05 Jun 2019

Written by Marc

Marc Shoffman is a leading finance journalist who specialises in personal finance, property and small business.

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When is the best time to remortgage?

When is the best time to remortgage?

Your mortgage is most likely your largest monthly expense but it is always worth shopping around to see if you can move to a better rate by remortgaging.

A remortgage lets homeowners pay off their existing deal and move to a new product that may offer a cheaper rate or a better offer that lets them release cash or have more flexibility. For more information on remortgaging and how to remortgage take a look at our articles:

When should you remortgage your home?

There are a few factors to consider if you are discussing when is the best time to remortgage. The first consideration is how long into a deal you are. Many mortgages will have early repayment charges (ERCs) or an exit penalty if you leave before the end of the term. The cost of this could outweigh any savings. This will determine how soon you can remortgage as it may be best to wait until there are no ERCs, which is typically once the deal ends. Even if you are a first-time buyer it is possible to remortgage to a better rate or from a flexible rate to a more manageable fixed rate.

If there are no ERCs attached to your product then it is always worth shopping around and keeping an eye on the deals that are on the market. There are a number of ways you can do this quickly. Firstly you could use an independent mortgage adviser who will have detailed knowledge of which mortgage lenders are most suitable for your circumstances. If you don't have a mortgage adviser already you can request a free mortgage review from an FCA regulated adviser. Alternatively you can get your mortgage reviewed free online using an online broker such as Habito who will will check through over 20,000 mortgages from more than 90 mortgage lenders before making a recommendation. Lastly you may also want to use this online mortgage calculator to compare two rates and see how much you could save.

The main reason for remortgaging is to avoid being moved onto the pricey standard variable rate (SVR) that banks charge at the end of a deal. This is the default rate that your mortgage will move onto and can be up to almost 5%, compared with many mortgage rates available to the public that are currently below 2%. This means you could end up paying double the rate on your mortgage once your current deal expires. You can avoid this price hike by remortgaging onto a better rate on the open market.

Remortgaging doesn’t always mean moving to a cheaper rate. It may be that you are looking for a more suitable deal, such as a shorter or long term fixed rate or a provider that gives you extra benefits such as a portable mortgage if you move home. If you were moving from a tracker to a fixed deal or a two-year to a five-year fix, it is likely that the rate will be higher, but this could be fine if the product suits you better.

You don’t just have to remortgage for a better rate. Many borrowers will use a remortgage to take advantage of extra equity that has built up in their property from house price rises. They do this by taking a bigger mortgage and using it to pay off their existing debt and then taking the excess funds as tax-free cash that can be spent on anything from clearing debts to home improvements or a major event such as a wedding.

How much does it cost to remortgage?

Remortgaging may save you money on your monthly repayments or give you access to tax-free cash, but it doesn’t come for free. There may be ERCs to pay if you are leaving before the end of a deal.

Finding a new product may also cost you money. If you use a mortgage broker they may expect a fee for their work, although many will just get paid a procurement fee from the lender so won’t charge you. Additionally, your new mortgage could come with a product fee and there could be costs for the valuation and conveyancing work. It is worth using a mortgage calculator to weigh up the total cost of your remortgage so you can assess whether the switch is worth it.

Things to consider before remortgaging

Remortgaging won’t necessarily work for everyone. The main stumbling block will be if there are ERCs to pay. But there are other factors that could make you think twice before remortgaging.

You may find it harder to remortgage if your circumstances have changed in recent years especially if you got your current mortgage pre-2014. Lenders introduced tougher application rules under the Mortgage Market Review in 2014 which include tough assessments on your income and spending as well as interest rate stress testing. This may make it harder for those with less provable and consistent income such as if you are self-employed.

Your credit report also needs to be squeaky clean as lenders can be put off by anomalies and have doubts on your ability to repay. Whether you are planning to remortgage or not is advisable to regularly check your report for any mistakes. If you have missed payments or arrears it can take six years for these to clear, but you can always add a note to your file if there is an explanation for why things may have gone wrong in the past.

It is also worth checking the value of your property. It can be hard to get a remortgage above 75% loan-to-value (LTV) so if you only paid a small deposit initially or it has fallen into negative equity – meaning the value is worth less than the mortgage – it will be harder to get approval or you may need to make up for the shortfall. Alternatively, you could wait for the value to recover or take steps to boost the property price. You can enter your postcode and find local prices on property websites such as Zoopla and Rightmove. It may also be more difficult to remortgage if you only have a small amount left on your existing home loan an as most lenders will have a minimum size that starts at around £50,000.

Is remortgaging worth it?

Remortgaging should leave you in a better financial situation, either by reducing your monthly payments, getting you a more suitable rate or from releasing cash that you can put to good use.

But you need to consider if remortgaging is worth it in the long run. Are you confident that you are moving to the best deal for you? If you are going for a lower rate, do you think deals could get cheaper and are you likely to miss out?

If you are releasing equity you will be left with a larger loan, are you sure you can afford the higher repayments? Is there likely to be a change in your financial circumstances that could affect your ability to repay? Remember, your home is at risk of repossession so it is important to ask these questions at an early stage.

Many people will release cash from their property to pay off debts, but you also need to tackle whether you are likely to build up the debts again otherwise this will just be a sticking plaster that has left you with higher monthly mortgage repayments.

There are alternatives to remortgaging the house if you want to release cash. You could get a personal loan or a credit card with interest-free spending. These are typically more suitable for lower amounts and will need to be paid back sooner than a mortgage which may have repayments calculated over 25 years. There are of course downsides to a loan, credit card and mortgage. If you miss a credit card or personal loan repayment you could end up paying a steep APR and have bad marks on your credit file, while falling into arrears on a remortgage puts your home at risk of repossession.

Should you remortgage before Brexit?

No-one has a crystal ball, but a key question at this time of Brexit-related uncertainty is should I remortgage now or wait? Lenders don’t like uncertainty and there is plenty of that around with little sign of an imminent deal on exiting the European Union. So it is worth considering if you should remortgage now or wait until Brexit is sorted?

There has been plenty of scaremongering about the impact of Brexit on the property market. Dire warnings of a 30% fall in house prices from the Bank of England have yet to ring true, although house price growth has slowed. This may affect the loan-to-value on your property and the amount a bank is willing to lend.

Another factor is confidence among the banks. Mortgage pricing is set based on swap rates, which is the cost of funding for banks on the wholesale money markets. These may go up and down depending on confidence in the economy and the long-term outlook. If swap rates are low, then mortgage rates typically fall and vice versa if they increase. Mortgage pricing is also linked to the Bank of England base rate and lenders will use it as guidance for how they set their own rates. If the base rate increases, banks may feel more justified to raise their pricing

Even if a withdrawal agreement is passed, there is still likely to be uncertainty over our future trading relationships, which could also impact confidence. Banks may feel less confident about lending or have tougher requirements if there is more economic uncertainty.

Mortgage deals are still hovering around their record lows, especially with interest rates still remaining relatively cheap. Rates haven’t gone up that much in the past three years since the Brexit vote, but there is always a chance that you could miss out on decent deals by waiting too long. Ultimately, whatever the situation with Brexit, banks will still want to do business and life must go on, so it isn’t worth putting your life on hold while political issues are worked out. It could be worth seeking financial advice from a mortgage broker who may have insight into the direction of mortgage rates but the questions is, how long are you happy to wait?

Summary

Timing is an important factor when remortgaging. The best time for many is when they have come to the end of their current deal as the offers on the open market will be better than being moved onto a lender’s standard variable rate (SVR). But there are also other occasions, such as if the savings on a new deal outweigh any ERCs on an existing deal making a remortgage beneficial in the long term.

As with any financial product, it is always worth keeping an eye on the market to see if you can snap up a better deal.

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