How To Remortgage Your London Home To A New Lender
The current talk is all of a hike in interest rates. Isn’t it always? Just as we find it hard to enjoy good weather without gloomily forecasting rain, our current tropical holiday of super-low mortgage rates is blighted only by speculation about a rate rise when the Bank of England next meets, at the beginning of August.
If the Monetary Policy Committee (MPC) does decide to raise the base rate, even just a quarter of a percentage point is likely to have a hefty impact on London homeowners.
And with a cooling breeze blowing over some sectors of the London property market (is it Brexit… still?) your home may not be looking like quite the same cast-iron store of value you could have banked on even a year ago.
All this means you need to be sure you’ve got the best-possible mortgage deal. This is no time to just sit back and rest your feet on the paperwork.
When you chose your current mortgage you were probably lured in with a sweetheart deal of a low interest rate pegged for a defined period: usually two to five years. When that term comes to an end your mortgage will roll over onto your lender’s considerably higher standard variable rate (SVR) – more expensive for you, much more profitable for them.
At the end of your fixed-rate term there are usually no penalties for changing to another mortgage lender, so it definitely makes sense to go looking for one of the better deals that will be out there.
5 good reasons to remortgage:
1 You want to grab a low interest rate before they go up
If you’re still in the initial fixed term of your mortgage, and worried about rising interest rates, penalty clauses for early get-out will probably mean it doesn’t make sense to try to switch yet. But you want to be ready to jump as soon as you can, and avoid that SVR.
If you get a remortgage offer at a temptingly low rate, you can “book” it and hang on to that rate for three to six month, even if you can’t complete the paperwork before rates rise across the board.
2 You’re on a variable rate, not knowing what your mortgage will cost each month
If you’re already on a variable rate, or on a different type of mortgage that isn’t looking so competitive now, you need to find some better options. With a new fixed rate you’ll have the safety of knowing what your payments will throughout the set term. And the rate will be lower than you’re paying now.
3 You want to change to an interest-only mortgage
If circumstances have changed and you need to reduce your payments, switching to interest-only, and deferring capital repayment, may be a solution to consider.
Interest-only mortgages are harder to find now, since the credit crunch revealed the borrowers who weren’t able to pay the outstanding capital when they came to the end of their mortgages. So you’ll need a broker to help you find one that could suit you.
4 You want to increase your mortgage
You’ve watched your neighbours sell their houses for eye-watering sums, and you’re sitting in the last unimproved house in the street. Now could be the time to access funds for those renovations.
Or you might want to release some capital to help a son or daughter get onto the property ladder. Or purchase a buy- to-let, or consolidate your existing debts.
If the value of your property has increased substantially, remortgaging for a sum that reflects your home’s current value will give you access to cash for spending on other projects.
5 You want to pay off a lump sum
If you’ve landed a nice bonus, or you know that an inheritance is coming your way, it makes sense to put it towards your expensive mortgage rather than have it languishing, earning very little income.
Not only will you make a useful dent in the remaining capital sum you need to repay, but a substantial lump sum can make a meaty difference to the loan to value (LTV) rating of your mortgage. The smaller your loan in relation to the value of your property, the better interest rates you’ll be offered.
If you’re still on your entry-deal fixed term mortgage you may not be allowed to pay off more than 10% of your mortgage value in a year without substantial penalties: you may want to be prepared to change to a more flexible mortgage as soon as you can.
How to remortgage with a new lender
You’re remembering the hassle of setting up your current mortgage: the legal fees, product fees, affordability assessment, the valuation… all the paperwork.
If all that’s enough to tempt you to stick with your current lender, or just follow the recommendation of a friend, you definitely need to engage a mortgage broker to do the investigative work for you. Contact Clifton Private Finance.
1 When to start looking
Surprise, surprise – your current mortgage lender won’t be keen to persuade you away from a roll over onto their profitable SVR. They may push a few of their alternative mortgage products your way, but you won’t be buried in advice telling you that you should be reviewing your options.
If you set up your initial mortgage via a good broker, they’ll prompt you when it’s time to review your rates and look at alternatives. Otherwise, you need to check your last annual mortgage statement to check when your fixed-rate period comes to an end.
About three months before then you should start researching your alternative options, or get a mortgage broker doing it for you, so that you can get a remortgage application before you’re due to roll over onto the SVR.
2 The advantages of switching to a new mortgage lender
• There are a lot more of them out there, with mortgage packages that will save you money, especially compared with an SVR.
• Your payments to date could have made a significant dent in how much you owe, so that you now have a lower LTV which could win you a better deal.
• A different lender may be able to offer a bespoke mortgage that’s better suited to your circumstances, if you work on contract, for example, or you want to be able to make regular overpayments, or you’re planning to take parental leave.
• Lenders know that set-up fees are off-putting to new customers: many of them offer incentives including free legal fees and valuations, and cashbacks.
3 Are you concerned about down-valuation?
With prices sinking in some parts of London, or just failing to continue to rise at previous rates, home owners in the capital are wary about updated valuations that might be unduly pessimistic and limit their access to funding.
The current valuation of your home is a key component in your LTV ratio, which will determine how much you can borrow, and what it will cost you.
You can challenge a valuation that you believe is unduly pessimistic, but you wouldn’t want to do it without professional help. A broker can make sure you get the right valuation in the first place, and avoid the kinds of delays that will prove expensive.
4 Go to a mortgage broker
Re-entering the world of mortgage applications is a reintroduction to the complexity of “lender criteria”: what kind of work do you do, how are you paid, what kind of property do you own. Plus fees and charges presented in a variety of different ways.
You could dedicate yourself to doing all the research and paperwork. But there will still be factors you won’t foresee which only become apparent mid-way through the application process become.
Five good reasons to use a broker when you’re remortgaging
1. For every month you’re paying a higher mortgage rate than you need to, time is money. The mortgage market is complex: a good broker will pre-select the mortgage package they apply for on your behalf, and get the application approved faster.
2. You get to talk through the options. A broker will ensure that you understand the pros and cons of the alternative packages you’re looking at, and can demonstrate the true costs to your of all the costs and charges. It might be, for example, that the “no arrangement fee” deal your lender has offered you directly will be paid for by slightly higher monthly repayments.
3. Even your current lender won’t necessarily offer you their own cheapest remortgaging option, which a broker might identify for you.
4. More recent flexibility and innovation in mortgage offerings mean there are now more options available, particularly for older borrowers. An interest-only mortgage might not be available to you, but there could be a part-repayment / part-interest solution that would suit you.
5. There will be broker-only products that you won’t have access if you’re a borrower applying direct.
Not to labour the point: remortgaging is a complex process. Get us to do it for you.