What Are My Remortgage Options?
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What Are My Remortgage Options?
Adam Messer explains current remortgage options, in light of the changing market at the moment. [Podcast recorded in July 2023].
My mortgage deal is coming to an end. What should I do?
Whatever you do, it needs to be as early as possible. I’ve been telling everyone that if your mortgage is ending in the next seven months, now is the time to act. You can choose a new mortgage deal up to six months in advance.
So if we choose one now and get a mortgage offer, that offer is going to last for six months. You can sit back, safe in the knowledge that no matter what happens to interest rates between now and your mortgage end date, your new rate is sorted.
Some people worry about doing that so early – what if rates go down? It’s probably unlikely, but if rates do go down, all lenders will let us choose a new deal. Just because we’ve got one lined up ready to go, we’re not tied in. If rates come back down we can change it.
A few months ago, actually, rates were starting to come back down. We got below 4% for certain cases. As rates were coming down it was less important to sort a remortgage six months in advance – we could end up redoing it three or four times before the mortgage deal ended.
But then things start to change again quite quickly. Over the last few weeks interest rates have been going up swiftly. So that advice has come back – do it as soon as possible because if rates go up even more you’ll be safe.
Is now a good time to remortgage?
Rates are poor at the moment, we’re at 6% or thereabouts for most people, even a little bit more. It’s not ideal and it’s nothing like we’re used to. Now’s a painful time to remortgage, and it means people are putting it off.
Even though we keep saying do it as early as possible, people are hesitant with such a jump in rate. Coming off a 2% fixed rate – or even lower than that – to 6.5% is a big shock. But while it’s not ideal, now is the perfect time to remortgage, because you need to do it as soon as possible.
If your current deal is due to end in the next seven months, do it now. If rates go up to 7% instead of 6% you’ll wish you did.
How quickly can you remortgage?
It can be quick – it depends on your situation. If you’ve got a complex property or income or credit score it can take a little bit longer – we might have to go to a more specialist lender.
With a fairly average mortgage with no complications we’d normally allow a couple of weeks to get a mortgage agreed and complete it within about four or five weeks.
But that doesn’t matter too much now, as we’re looking at a much longer time than that. We’ll get it agreed and then it just sits there waiting for your end date. Preparation is key – start looking six months before your deal ends.
Can I remortgage before my deal ends?
You can, but would you want to? It depends on your circumstances. Sometimes this has been the best thing to do. Perhaps a client wants to borrow extra money and their existing lender won’t help. We also help people repay Help to Buy loans, and that can be done whenever.
Remember, however, that you’re going to come away from your existing deal, which is probably lower than a new mortgage. You might leave a 2% or 3% rate and go on to 6% or 7%.
You will also pay for the privilege – your existing lender is going to charge you a penalty called an early repayment charge. It could be 1% to 5% of your loan amount and end up being a few thousand pounds.
So it’s quite unlikely it’s the best thing to do, unless you’ve got other needs in the background. We have helped people who don’t want to move but want to do an extension and their existing lender won’t help.
Another option – probably a subject for another day – is a second charge, which is like a second mortgage. That saves you paying off the current lender, but it comes with its own higher rate and fees as well.
Can I move to a new rate when my current mortgage deal ends?
That’s what I spend my life telling people they should be doing. If you’re on a fixed rate right now, when that finishes you’re automatically going onto the lender’s standard variable rate. That’s normally higher than all their other rates.
It’s a fully flexible rate – you can pay the whole mortgage off without a penalty, you can overpay, but it’s a very high rate. A lender assumes that a certain percentage of customers will do that and it’s very profitable for them. But what we try to get everyone to do is get a new deal lined up early – six months, remember.
Then, when you finish your current fixed rate you straight away go on to a new fixed deal – either with the same lender or a new one. It’s normally best with a new lender – you tend to get a slightly better deal as a new customer.
That is absolutely the best thing to do – never, ever spend any time on your variable rate. If you’re moving and there’s a month or two to wait, that’s the only reason why you’d ever do it.
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Can I extend my mortgage term?
There’s media coverage at the moment about the ‘new mortgage charter’ from the government. That includes extending mortgage terms. Some lenders already let you do that – it all depends on how old you are, how long your mortgage is and when you plan to retire.
Most lenders have a maximum age, normally 70 or 75. It depends on what you do for a living as well. If you’re a scaffolder, for example, a lender is unlikely to believe that you’re going to work to the age of 80 – it’s a very physical job.
The new government mortgage charter encourages lenders to be more forgiving on changing the term, to help people spread their mortgage out over a longer time to lower their monthly costs.
Changing to interest-only is another area – that’s a different subject. But the government has encouraged lenders to be more flexible to help people who are struggling.
So yes, potentially you can increase the term of your mortgage. You can certainly do that when you remortgage to a new lender. If you are midway through your fixed deal it’s a little bit more tricky.
Can I fix my mortgage with rates increasing?
There are copious numbers of fixed rates available – it’s the most common option. There was a phase of arranging base rate trackers a little while ago when it looked like things had levelled off – that’s got less popular now.
Every lender has a fixed rate. If you’re on one now you’ll be able to go on to another one, even if it’s with the same lender.
How long should I fix my mortgage for?
I don’t know – no one does. We can fix for a couple of years – two years is the shortest term that most lenders do. A five year fix is common and there’s a three year deal as well.
If you fix for five years at the moment, you’re going to pay a slightly lower rate than you will for two years. Popular opinion is that rates will start to come down in the future, in a year or two. That’s no guarantee – I don’t know that they will.
If that does happen, though, a five year deal isn’t the best thing because you’re fixed in for another three years. If rates have dropped down you would face a penalty to leave your deal. If you fix for two years and rates come down, you can make the most of that.
But will rates come down? Will it be in two years or five years? No one can answer that for you. It is a completely personal decision.
Some people just want to know what their payments are going to be for five years and that’s fine – it doesn’t matter to them whether rates come down or not. Others want to make the most of rates coming down, if they do.
I don’t think they will, to be honest. I think we’re probably set like this. Hopefully they’re going to level out and not go up much more. But I don’t know any more than anyone else. We already expect the Bank of England base rate to go up a little bit more – but that doesn’t necessarily mean that mortgage rates will.
They link to the rest of the economy. If the Bank of England rate goes up 0.25% in August it doesn’t mean that mortgage rates will do the same thing. In fact the base rate went up at the start of July but most lenders had already predicted that – rates had already gone up. Lenders can know what’s happening before the Bank of England makes a decision.
Can I remortgage with credit card debt?
Absolutely – we do this all the time for people. It depends what you want to do with that credit card debt. Just having the debt doesn’t necessarily affect your mortgage as long as it’s affordable.
If you’ve got debt in the background – loans or credit cards – and you’re staying with the same lender, it doesn’t matter. No real questions are asked if you’re not making any changes to the mortgage. You can just swap to a new deal.
If you’re changing lenders and your credit cards and loans are staying in place, it needs to be affordable with the new lender. They’ll factor in your income and outgoings to make sure you can afford the new mortgage.
Can I remortgage to pay off debt?
Paying off loans and credit cards with your mortgage is called Debt Consolidation. It’s a whole subject we could talk for hours about. There are videos on the channel about this specifically.
But there are a few things to note. If you’re paying off credit cards, don’t repay anything on zero percent credit cards. Why add an interest free debt to a mortgage at 6% – you shouldn’t be doing that.
Small credit card balances of a few hundred pounds shouldn’t be added onto a mortgage either – just try to get those paid off. But if you’re only managing to make the minimum payment on your credit card and you can’t pay any extra, you’ll have that debt for a long time.
With Debt Consolidation we add that onto the mortgage and it makes one neat payment. Because it’s on a lower rate than your credit card, you can usually repay it without increasing your mortgage term. Your monthly payments for everything can suddenly drop down.
What we encourage people to do is say if you’re used to spending £1200 a month on your mortgage, credit card and loans, and your new payment is a total of £800 a month, use that extra £400 to overpay. You will reduce your mortgage balance even quicker and you’ll be glad of that in a few years time.
Even if that’s not an option right now, hopefully in the future if interest rates come back down again, we can overpay. It gives people a clean slate. This isn’t an IVA or a debt management plan – don’t do those things, speak to a mortgage broker first because there’s always going to be a way.
Can you remortgage a Help to Buy loan?
Yes, absolutely. I’ve done lots of videos on this and it’s one of our most popular subjects on the YouTube channel.
With Help to Buy the builders advertised it almost like free money. But actually you’re borrowing 20% of the property’s value and that’s what you have to repay – at the current price. There’s a big misconception – say you borrowed £80,000 and think that’s how much you pay back. But actually if your house has gone up £50,000 in value, you’ve got to repay an extra £10,000.
We help people with this all the time. We get two valuations – one for Help to Buy and one for the new lender. They don’t have to be the same – that’s a hack for paying off Help to Buy. We borrow more from the new lender. If you have some cash to put in as well, that’s great.
Hopefully we’ve got enough equity in the property to borrow more from a new lender and pay off Help to Buy. Then it’s just your mortgage – and that’s a great position to be in. I took Help to Buy myself a few years ago and paid it off. It’s pretty comforting to know that it’s not accumulating in the background.
How can a mortgage broker help?
A mortgage broker has access to so many things that you don’t as a consumer. You can go on a comparison site and plumb in some basic details to see some rates, but that doesn’t tell you whether that lender will actually lend to you, that they will accept your property or fit your circumstances.
A few lenders don’t advertise on those platforms because they’re intermediary-only. Mortgage brokers arrange 75% to 85% of all mortgages in the UK. We make up a massive share of the market.
So if anyone’s going to have a chance of getting you a better rate or support your circumstances, it’s a mortgage broker – not a meerkat.
Think carefully before securing other debts against your home.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Your home may be repossessed if you do not keep up with your mortgage repayments.
Useful Links
- What are my Remortgage Options?
- Remortgaging For Home Improvements
- Remortgage to Release Equity
- Remortgage to Repay Help To Buy
- Remortgage When Self – Employed
- Interest Only Remortgage
- Buy to Let Remortgage
- Product Transfer Mortgage
- Remortgage of an Unencumbered Property
- Remortgage to Pay Off Credit Card Debt
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