How To Refinance A UK Property
The traditional average mortgage term has always been around 25 years, and now many people, especially first-time buyers, look for arrangements with terms of 30 years or more. However, it is increasingly rare for a borrower to keep the same mortgage for this full term. In this article, we look at some of the reasons why you would want to refinance a UK property and how to do it.
A residential mortgage usually has an initial period, say two to five years, on a fixed or discounted interest rate. Thereafter, the interest rate reverts to the lender’s Standard Variable Rate, which can be several percentage points higher.
Raising additional funds via a re-mortgage
Many re-mortgages are set up on a ‘like-for-like' basis, where the new mortgage is for the same amount as the outstanding balance on the previous mortgage.
Others choose to raise additional funds via a remortgage. With prices increasing in many parts of the UK over the last decade, homeowners may want to use the capital growth they have enjoyed to generate additional money. A borrower with £150,000 outstanding on their mortgage might re-mortgage for £200,000, to give them £50,000 to spend on something else.
Some of the most common reasons for raising additional funds via a re-mortgage include:
- Home improvements – building extensions or making significant alterations to your home can require significant sums of money that are beyond the means of many. Hence the answer is often to borrow the required sum via a mortgage, which is one of the very cheapest ways of borrowing money
- Raising a deposit for a home – you might want funds for a deposit on a second home, a buy-to-let or a first home for a family member. It might not be a realistic option to accumulate the necessary sum via savings, so again you can do this via a re-mortgage
Debt consolidation via a re-mortgage
This is also a popular option, and your first instinct might be to embrace this option enthusiastically. After all, a mortgage is just about the cheapest way of borrowing money. A simple comparison of the monthly repayments on £50,000 of mortgage debt versus what you might be repaying on £50,000 of credit card and higher interest loan debt is likely to show that the mortgage option is much cheaper.
However, you need to proceed with great caution here. With any re-mortgage transaction, even one that doesn’t involve any additional borrowing, it can be beneficial to seek professional advice, if only to ensure you get the best deal in the market. It is strongly recommended, however, that you speak to a mortgage adviser before consolidating any debt via your mortgage.
Remember that if you consolidate debt into your mortgage:
- The debt you consolidate is likely to be unsecured debt, but you will now be converting this into debt secured against your home
- You could end up being in debt for longer. A mortgage might last for 25 years, 30 years or even longer, whereas your other debts might be for much shorter terms, so by converting your short-term debt into mortgage debt, you could be significantly extending the term
- You could end up repaying much more in total over the longer term. While mortgage repayments may be cheaper each month than higher interest debt repayments, your mortgage term might be so much longer than the term of the debt which you consolidated that you actually end up paying more in total. £50 per month for 25 years ultimately costs more than £200 per month over five years
When you seek professional advice, your adviser will tell you whether it is a good idea to consolidate or not. They may recommend that you consolidate some of your debts and leave the others in place.
Re-financing a bridging loan via a mortgage
Bridging loans are short-term arrangements which often have terms of 12 or 18 months, and one of the most common ways in which these loans are repaid is by re-financing to a standard residential mortgage.
You might for example take out a bridging loan on an uninhabitable investment, where no lender would consider a conventional mortgage. You would then carry out the necessary work to make the habitable and pay off your bridging loan using a standard mortgage. Using this buy refurbish strategy is commonly used by investors in building portfolios.
Alternatively, you might need to complete a purchase quickly, and might not be able to wait for the full mortgage application process to complete before paying the asking price to the seller. Being able to move quickly in the market can make a difference. Here you might take out a bridging loan to buy a, where the applications can complete in a shorter timeframe, and at a later date you would pay off the bridging loan using a mortgage.
Re-mortgaging a UK for expats
If you are no longer resident in the UK, there’s no reason why you shouldn’t consider re-mortgaging when your fixed or discounted rate comes to an end, and there’s no reason why you can’t shop around for the best deals. There’s no reason either why you can’t use the re-mortgage as an opportunity to raise funds for any other purpose, such as home improvements, debt consolidation or a deposit on a purchase of an additional.
However, there are some important factors that need to be considered for expats, so it can be beneficial to seek professional advice.
If the has been empty, hopefully, you will still be able to get a re-mortgage – it is possible that your insurance policy contains clauses relating to how long the property can be empty, or how frequently you need to return.
If you want to let out the remortgage product you need will be a buy to let mortgage, and for expatriates these have higher interest rates and may not be available at higher Loan To Value levels.
Finding the best mortgage offer you’re eligible for
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