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Re-mortgages

Switching mortgages from one lender to another is known as a re-mortgage. A re-mortgage can unlock equity from your property or reduce your payments.


Why consider re-mortgaging?

You’re on the lender’s Standard Variable Rate

Lenders typically offer mortgages with introductory fixed rates or discounted rates for a fixed term. Once this term expires, the mortgage rate reverts to the lender’s Standard Variable Rate (SVR). It is usually very costly to remain on the SVR for any length of time. The banks would love you to stay on the SVR forever, but smart borrowers typically re-mortgage to a cheaper deal.

Stuck in a fixed-term deal, but found something better

If you are already in a fixed deal and see something cheaper, it is possible to re-mortgage. However, lenders effectively stop borrowers from doing this with Early Repayment Charges (ERCs). If you have a mortgage with an ERC, you can pay off the mortgage whenever you like – as long as you pay the lender a fee. This fee is usually a percentage of the money you have borrowed, so it can be a very large amount. ERCs often taper as you approach the end of the fixed term, but even a 1% ERC can be many thousands of pounds.

You want to pay more, but the banks won’t let you

Overpaying a mortgage is an excellent way of reducing the burden of mortgage interest. You might have inherited some money or been given a bonus at work and want to pay down your borrowing. Overpayments come directly off the capital, so it immediately reduces the amount of interest accruing. However, many mortgage deals will not allow you to overpay. Some banks trap their customers with overpayment limits, say 10% of the outstanding balance per year. This being the case, you may want to re-mortgage to a more flexible deal that allows overpayments.

House price rise has given you a better Loan to Value

You may have a mortgage on a property in a desirable area and its value has risen dramatically. This rise has increased your equity and brought you into a lower Loan to Value (LTV) band, unlocking a range of low interest mortgages that you could not previously access. Remortgaging would allow you to reduce your monthly payments and your mortgage term. The best deals are available to borrowers with 40% equity (60% LTV) or more.

Example

You have £50,000 equity in a £200,000 property, so you owe the bank £150,000 and your LTV is 75%. Then, property prices rise so your property is now worth £300,000. You still owe the bank £150,000, but your equity is now worth £150,000. As such, your LTV has dropped to 50% and should give you access to the best deals around.

Other reasons to re-mortgage

Equity release

Equity release involves borrowing money against the equity you have in your property. Equity is the portion of the property that isn’t mortgaged, so the owner of a £200,000 property with a £120,000 mortgage outstanding would have 40% equity. Re-mortgaging would allow you to retrieve some of the equity in exchange for increased borrowing. You may wish, for example, to perform some renovations, extensions, etc.

Change of circumstances

There are myriad ways in which a change in circumstances can warrant a re-mortgage. A newly married couple might wish to take out a joint mortgage. During the process of a relationship breakdown or divorce, one owner of a property held in joint names might want to “buy out” the other owner by taking on additional borrowing.

Why do I need a solicitor?

Lenders don’t normally allow borrowers to perform their own conveyancing. Once you have a mortgage offer in principle, you should approach a solicitor to handle the conveyancing. Your solicitor will liaise with lenders to obtain redemption statements. They will check that the property has a sound legal title and perform any relevant checks and searches. You have to sign the mortgage paperwork in front of a solicitor as a witness. When the re-mortgage completes, the solicitor will pay off the old mortgage and remove the old lender’s interest in the property and register the new one at the Land Registry.

When don’t I need a solicitor?

If you are switching mortgages but remaining with the same lender, commonly known as a ‘product transfer’, the lender already has most of the initial paperwork relating to you and your property. This process can often be done on the phone with the lender (or online) and does not normally require a solicitor.

Any questions?

Call your local Inghams office, or contact us online. We have conveyancing specialists at all of our branches who can help you with your re-mortgage and any other property matters.