If you own a property—whether outright or with an existing mortgage—there may come a point when you need to remortgage or raise capital against it. In this comprehensive guide, we will walk you through the process, explain the types of rates and deals you can expect, and outline how to refinance your property effectively.
What is a remortgage and how do they work?
Remortgaging refers to either switching your current mortgage to a new lender or renewing it with your existing lender, a process known as a product transfer. The latter is often simpler, but staying with your current lender may limit you to their product range, potentially missing out on better deals available elsewhere.
When you remortgage, you are effectively replacing your old mortgage with a new one, using the new funds to pay off the existing debt. However, the remortgage amount doesn’t have to match the original loan. You can borrow more if you have sufficient equity or, alternatively, pay a lump sum to reduce the mortgage term when you refinance.
Why homeowners refinance
Homeowners typically refinance their property for one or more of the following reasons:
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End of an introductory rate period: When the introductory fixed or discounted rate period ends, if you don’t remortgage, you could be moved onto your lender’s more expensive standard variable rate (SVR).
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To find a lower interest rate: Even if it’s not time to renegotiate your mortgage, there may be a significantly better rate available with another lender. If switching, be sure to account for any early repayment charges (ERCs).
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Borrow extra: You can release equity by borrowing more against your home’s value when refinancing. The amount you can borrow depends on how much equity you’ve built up.
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Make changes to your mortgage: This could involve adjusting the product type, repayment type, term length, or adding/removing someone from the mortgage. In some cases, these changes can be made without a full remortgage, but it depends on your lender’s policies.
When can you remortgage?
Most lenders allow you to remortgage after six months of taking out your original mortgage, though a few may offer flexibility and permit it sooner.
It's advisable to start looking for a new deal about six months before your current loan's introductory period expires. Some lenders allow you to lock in a new interest rate this far in advance, which can be beneficial during periods of market volatility.
If you're still within an introductory rate period, you can remortgage, but early repayment charges (ERCs) may apply. These costs should be factored into your overall decision to ensure the remortgage is financially viable.
What does the process involve?
The remortgage process consists of the following steps:
Calculating your LTV (Loan-to-Value): To calculate your LTV, divide the amount you need to borrow by the current value of your property, then multiply the result by 100. This percentage helps determine which remortgage deals you may be eligible for, as many lenders offer better rates to those with lower LTV ratios.
Tallying up the cost: It’s crucial to consider all potential costs before remortgaging. Include any early repayment charges (ERCs), as well as fees like the application fee, valuation fee, and solicitor costs. Some lenders may waive certain fees or offer inclusive deals with incentives to encourage you to switch, helping reduce your overall costs. Be sure to compare these factors when evaluating remortgage options.
Compare deals and secure an AiP: You can quickly compare remortgage deals it only takes a few minutes to secure an Agreement in Principle (AiP). This will provide you with a clear understanding of how much you can borrow and the terms available to you.
Full application and completion: After securing an AiP, the next steps are submitting a full application and completing the remortgage. During this stage, the lender will conduct checks, including a credit assessment and property valuation. A solicitor or conveyancer will manage the mortgage transfer, though some lenders offer this service as part of their remortgage package.
What interest rates are currently available?
There is a wide variety of remortgage rates available in the market. The specific interest rate you qualify for will depend on factors such as the amount of equity in your property (more equity typically results in better rates), the strength of your application, and the type of mortgage product you choose.
Tips to help you get the best deal
Here are some tips to bear in mind if you are remortgaging your home:
Don’t wait for your lender to call you: While mortgage lenders often contact customers with expiring introductory rates months in advance to discuss a new deal, you don’t have to wait for their call to begin exploring other options. Some lenders allow you to lock in an interest rate up to six months in advance, so starting your search early could help you secure a better deal.
Check your credit reports: You can access your credit reports by signing up for a free trial with Checkmyfile. Review your files carefully and flag any inaccuracies or outdated information, as correcting these issues can improve your credit score and increase your chances of qualifying for better remortgage rates.
Think twice before accepting your existing lender’s offer: While the product transfer rate offered by your current lender might seem convenient, it may not be the best deal available. To ensure you're getting the most competitive rate, it's important to shop around and compare offers from other lenders before making a decision.
Speak to a mortgage broker: A remortgage broker can provide access to a wider range of remortgage deals. With their expertise, experience, and connections to lenders, they can help increase your chances of securing the best possible rate when you refinance.
Releasing equity when you remortgage
When refinancing, many homeowners have the option to release equity from their property. The amount you can release will depend on your current equity, the purpose of the capital release, and the maximum loan-to-value (LTV) cap set by your lender for additional borrowing.
The table below outlines common reasons for releasing equity and the typical LTV caps you can expect for remortgage deals:
|
Reason for Releasing Equity |
Typical LTV Cap |
|
Property renovation/home improvements |
90% |
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Buy another property |
75-85% |
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Buy out an ex-partner |
75-85% |
|
Debt consolidation |
60-85% |
In addition to LTV caps, some mortgage providers also impose maximum borrowing limits on remortgages when releasing equity, depending on the purpose of the funds. For example, certain lenders may restrict borrowing to no more than £250,000 for home renovations. These restrictions can vary, so it's important to confirm the limits with your lender based on your specific needs.
Can you refinance if you have bad credit?
Yes, it is possible to remortgage your home even if you have poor credit, whether the issue existed when you took out your original mortgage or developed afterward. Approval will depend on the strength of your application and factors such as:
- The age of the credit issue(s)
- The severity of the problems
- Any mitigating circumstances surrounding them
Severe issues like bankruptcy or repossession can make refinancing more challenging but may still be possible if you have significant equity and the credit problems occurred a long time ago.
Refinancing a buy-to-let mortgage
The process for remortgaging a buy-to-let property is very similar to that for a residential home. Most lenders require landlords to have owned the property for at least six months, but a few, such as HSBC and NatWest, offer day-one remortgages for investment properties.
Interest rates for buy-to-let remortgages are generally higher than those for residential properties, typically starting about one percentage point higher, as a general rule of thumb.
Mortgage lenders known to offer buy-to-let remortgages include:
- Godiva
- Landbay
- Barclays
- HSBC
- Virgin Money
- LendInvest
Remortgaging in later life
Although many mortgage lenders have a maximum age limit of 75, making refinancing difficult for some homeowners, others have higher caps, lending up to age 85 and beyond under the right circumstances.
For older homeowners considering refinancing, there are alternatives tailored to their needs, including:
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Lifetime mortgages: If you’re looking to release equity, a lifetime mortgage could be a suitable option. This type of loan allows you to access capital from your property, with repayment deferred until you pass away or enter long-term care. If you still have an existing mortgage, you can take out a lifetime mortgage, but the outstanding debt must be settled with the equity you release.
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Retirement Interest Only (RIO) mortgages: A RIO mortgage allows you to make monthly interest payments, with the capital debt repaid at the end of the term, typically through the sale of the property after you pass away. This option can reduce monthly payments while maintaining homeownership.
Frequently Asked Questions
Yes, some lenders offer incentives for either staying with them or remortgaging to one of their deals from another provider. However, it's crucial to consider the overall cost of the deal and compare how much it will save you in the long run compared to other options. Always evaluate both the short-term savings and the long-term financial impact.