Remortgage

Moving home is a stressful time, purchasing a new home whilst selling your existing property.  This is why it’s important to minimise the stress of arranging a mortgage as much as possible. 

Some lenders allow you to transfer your existing mortgage to a new property which is known as “porting” your mortgage.  This is officially the repayment of your mortgage when you sell your existing property and a new mortgage on the same terms on your new property.  Some lenders will re-assess your affordability at completion and they will perform a valuation review of your new property.  You cannot assume your mortgage provider will let you do this, you need to engage them and ensure they agree to port your mortgage.

Many people switch to a new mortgage when they buy a new house.  This may be because their lender won’t let them port their existing mortgage but also because there could be more competitive rates available from other lenders. 

To get a mortgage, you need equity of at least 5%. To get a good rate, you’ll typically need around 20% of the home’s value and 40% for the very best market-leading deals. The golden rule is simple. The bigger your equity (and savings), the better the rate; the lower your monthly repayments, the cheaper the remortgage. The difference between a 10% and 20% mortgage is huge, then the next big jump is at 25%, and then 40%.

It’s important to understand your borrowing will depend on two factors.

• The equity in your home. If you owe £135,000 and the house is now valued at £180,000, you have £45,000 equity. If you’re applying for a remortgage to replace the £135,000 loan, the £45,000 equity is equivalent to a 33% deposit for someone buying a property.
• Can you put any other cash towards it? If you’ve savings you can use (always keep an emergency fund), this can lower your borrowings and may result in a better mortgage.

Despite the potential savings available, there are some people who probably shouldn’t remortgage. It’s all a question of money, timing and your personal circumstances. Essentially you have to decide whether the savings available at the point you’re considering switching deals will outweigh the cost. Think carefully if you fall into one of the following categories:

• You may already be on such a fantastic deal that you’d be mad to move. But don’t get too comfortable — chances are it won’t always be top of the tree, so eventually, you’ll need to consider hopping on board the remortgaging merry-go-round. It’s worth doing some checks so you KNOW you’ve got the best deal possible, and that it’s future-proofed.
• Alternatively, you may be on a poor deal, but the lender has locked you in with such a horrendous early repayment charge that it’d be utter madness to move before the end of the incentive period. If you’re on a really bad deal that would cost too much to free yourself from, then it’s all the more important to move as soon as you can. Do your homework, and be ready — and try not to think about how much money it’s costing you every month in
  the meantime. It’s always worth asking your current lender if it will let you switch to another of its deals
  (ie, do a product transfer) by paying a reduced early repayment charge. Chances are slim, but it’s worth a go.
• Those who own 10% or less of their property. If you own less than 10% of your property outright — or to put it another way, you need to borrow more than 90% of the current value of your property — then you’ll find it difficult to get the best new mortgage deals. While 95% mortgages are increasingly common, they’re mostly angled towards purchasing rather than remortgaging. And rates for 95% mortgages, while getting better, aren’t the cheapest. So unless you’re on a very high rate deal now, you’ll really need to get below the 90% threshold to save.
• Those whose equity has shrunk. You may have had a 10% deposit when you bought your home and got a decent mortgage, borrowing the remaining 90% of your home’s value. But now, your house’s value has dropped and the amount you owe is a bigger proportion. Unfortunately, you’re a victim of evaporating equity, even if you have been making repayments, and that can hurt you. In some cases, you may be in negative equity, where your debt is higher than the value of the property
• Those with a very small mortgage. Once your loan falls below a certain amount — say around £50,000 — it may not be worth switching lender simply because you are less likely to make a saving if the fees are high. In fact, some lenders won’t even take on mortgages below £25,000. The smaller your mortgage, the bigger the effect any fees you pay to remortgage will have. And with many new deals offered on the basis of you paying a four-figure fee, make sure you do the maths to work out if you’re better off switching or not. In some cases, it may be worth remaining on a higher interest rate to avoid the fee.