A 2024 Guide to Remortgaging Property in the UK

You have probably heard of remortgaging, but what does it mean? Is it something you should do? In this blog, I will give you the lowdown on everything you need to know about remortgaging your property. I will cover the following:

Table of Contents

Different types of remortgages
The remortgaging process
Pros and cons of remortgaging
Eligibility and considerations
Finding the right lender for your remortgage
Costs and fees of remortgaging
Additional resources

What Does Remortgaging Mean?

Remortgaging is when you move your mortgage to a different lender, but continue to own the same property. You may remortgage your property once you are out of a fixed rate period to get a lower rate of interest and reduce your monthly mortgage payments. Some people may find the value of their property has gone up and can get a better rate with a new property evaluation. Others may remortgage a paid-off property to free up some money.

If you want to get a better deal on your mortgage, unlock the equity in your property, do some home improvements, or consolidate various debts into an easy monthly payment, remortgaging could be for you. However, I have a lot of info for you to digest before you take that step.

Different Types Of Remortgages

Even though a mortgage and remortgage are the same thing, lenders may have different rates and a different range of products for remortgage customers. I suggest that you shop around and find out the best deals on offer.

Debt Consolidation Remortgage

Maybe you want to take out a new mortgage to consolidate other debts. A remortgage can give you the chance to pay off those debts and repay the new mortgage month by month in a single regular payment. If you get a decent interest rate, this could save you hundreds per month, rather than accruing interest on several smaller debts. This can be a risky move if you are already in debt – I recommend that you seek some advice from the pros, like a mortgage adviser or financial advisor before remortgaging to consolidate debt.

Equity Release Remortgage

A remortgage could be a great way of releasing that equity that is tied up in your property without having to move house. There are two kinds of equity release mortgages:

Lifetime mortgages, which is are loans that don’t need to be repaid until you pass away or move into a residential care home. These are usually available to people over 55 years old.
A home reversion plan, which allows you to sell your property while still living in it, usually to a reversion company. They effectively ‘buy’ your property.

However, getting an equity release mortgage can mean the value of your estate will go down, meaning less of an inheritance for the beneficiaries in your will.

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Home Improvement Remortgage

You can remortgage your property to free up some cash for much-needed renovations. A brand-new kitchen or bathroom can add more value to your property, thus increasing your equity. You could also improve the energy rating of the property which can boost its value considerably, or bring an older house in line with more modern properties.

A remortgage for home improvements can be risky, as you may end up borrowing more than the added value, or end up out of pocket if the renovations cost more than expected. Shop around and get different quotes from builders to make sure you can afford the required building work. Consider other options such as personal loans for home improvements if this makes more financial sense for you.

Remortgaging to get a better rate with fixed-rate or variable-rate mortgages

If you have owned a property for some time, then it could have increased in value and be worth a lot more than you originally paid for it. You can also get a better rate by choosing a new mortgage with another lender, or even sticking with the same lender if they have some better deals available. Fixed-term mortgages stay at the same rate for 2-5 years, after which time the interest rate will revert to their standard variable rate, or SVT. This could mean you have to pay more per month, and who wants that?

Shopping around for a better deal can save you money on your monthly mortgage repayments. You can also reduce your loan-to-value (LTV) ratio to get a better deal – especially if the property is now worth more than you originally paid for it. Here’s a real-life example of how a reduced LTV ratio can be worth your while:

Steve and Jo live in a house that was valued at £225,000 when they first bought it using a mortgage from their bank. They offered £25,000 as a deposit and got a mortgage of £200,000. After a few years of living in that property, doing some home improvements such as a new kitchen and bathroom, plus the rise in local property values, this property is now worth £400,000.

Their initial loan amount was £225,000 – £25,000 = £200,000.

Now, with the increase in property value to £400,000, their current LTV can be calculated as follows:

LTV = (£200,000/£400,000) × 100 = 50%

Therefore, their current Loan-to-Value (LTV) ratio is 50%. This means Steve and Jo can get a better mortgage with lower interest rates, more flexible terms and a much lower monthly payment.

I would recommend a product transfer in this case. This involves less paperwork and often, zero fees, as there’s no need for a new property valuation or legal fees. Find out more by contacting your current mortgage provider.

Second mortgage

People who want to free up some extra cash or pay off debts can get a second mortgage, also known as a second-charge mortgage. This lets you borrow money based on the amount you still owe on your first mortgage and the value of your property. This is a high-risk type of remortgage as if you default on either mortgage, your property could be repossessed.

Lump Sum Remortgage

Also known as a repayment mortgage or overpayment mortgage, a lump sum remortgage lets you pay off a chunk of your property without incurring an overpayment charge. This means you will pay less interest overall. Of course, banks don’t want you to do this, so they can continue charging you interest for longer. I would advise you to find out how much you can pay off with your current mortgage lender without incurring an overpayment fee, and if it’s not as much as you want to pay off, then look around for a better deal.

What Type of Remortgage is Right For You?

This depends on what you want to achieve with the remortgage. If you want to stick with the same mortgage provider and just get a lower interest rate, then go with a product transfer with your current mortgage lender. However, other lenders could offer a better deal, so do your research and shop around before committing to a new mortgage deal.

The Remortgaging Process

Do Some Research On Available Mortgages

You want to get the best deal possible when remortgaging to save you as much money as possible – that’s where research comes in. Look at what kinds of mortgages are available to you from different lenders so you can make smart, informed choices for your remortgage. Think about what exactly you need from it before remortgaging, plus your wider financial plans over the next few years.

Compare Different Mortgage Deals

After doing research, the next thing you need to do is compare different deals and products from different mortgage lenders. Try out a mortgage calculator online to get an idea of how much you could borrow with a remortgage. Comparison websites can be a quick and simple way to do this but don’t ignore lenders whose products may not appear on these kinds of websites. If a deal seems too good to be true, it might just be. Don’t forget to look for any extra costs and fees that may be included. Have a look at a few different comparison websites too, as they don’t all give you the same information.

Get Professional Advice About Remortgaging

Okay, so you’ve done your research and compared a few different products on the market, the next step is consulting with a financial advisor or mortgage broker. They can offer impartial advice with the benefit of experience, give you a rundown on the pros and cons of your preferred mortgage product, and steer you away from making bad decisions. As a professional property developer, I know the value of expert financial advice when investing in property.

Completing The Remortgaging Application

Now you are ready to apply for your remortgage, and many lenders will offer an Agreement in Principle (AiP) through an online application. This is not legally binding, but it will give you a decent idea of how much money you can get through remortgaging. Make sure you have all financial information to hand, including:

Your payslips from at least the last 3 months to prove you have an income (self-employed people need proof of earnings or tax returns from the last three years).
Bank statements and credit card statements from the last 3 months.
Proof of your identity, such as a passport or driving licence.
Proof of address in the form of utility bills or similar document.
Your latest P60 form.

Finalising The New Mortgage Deal

It’s time to seal the deal! This may involve a credit check and a property valuation before the lender hands over the cash. It’s a good idea to avoid applying for credit just before a mortgage, as this can affect your credit score. You will also need a solicitor or a conveyancer to handle the remortgage if it’s from a new lender, although many lenders do offer this as a free service.

When Should I Start The Remortgaging Process?

The whole process of remortgaging can take at least a couple of months, so it’s a wise move to start researching before your current term is up. Some deals can be agreed in advance and will kick in just as your current term ends, so you avoid going onto your current lender’s SVR which can cost you more.

Pros And Cons Of Remortgaging Your Property

A remortgage could be the best thing you have ever done to improve your financial situation, or it could be a bad move, depending on various factors. Here are some remortgaging pros and cons to consider:

Why Should I Remortgage?

Get A Lower Interest Rate

If your existing fixed-rate mortgage deal is ending, you will be moved onto the lender’s Standard Variable rate, or SVR, which can be a lot higher than the interest rate of your original deal.

Lower Your Monthly Repayments

You may have built up equity in your property, meaning you could secure a much better deal and pay less per month on your repayments. This means more financial freedom for you, as your overheads have decreased considerably.

Consolidate Debts

If you have outstanding credit card balances, loans, or other forms of debt, taking out a new mortgage can help you pay those off and streamline your monthly outgoings to a more manageable single payment. This is ideal for those who have a lower LTV and increased equity in their property.

Increase Equity With Home Improvements

A remortgage can free up some money that you can use to improve your property. This will help to increase that property’s value and also save you money on other things like utility bills if those renovations make the property more energy efficient.

Why Shouldn’t I Remortgage?

Remortgaging can be risky, so it’s important to be aware of any pitfalls you may encounter on your remortgaging journey. Be aware of the following:

There May Be Extra Fees and Charges

Remortgaging before you are out of your current fixed-term mortgage can incur fees. If you want to overpay your mortgage to hack away at the interest rate or pay off your property faster, you can get hit with an early repayment fee. Find out when your current term ends, and see what the charges are for early repayment. Check to find out how much you could be out of pocket after admin and legal fees are paid too.

Your Home Could Be Repossessed

Like any mortgage, failing to make the monthly repayment could mean your property gets repossessed by the lender. This could be devastating, if this property happens to be your home.

Consolidating Debts May Be More Expensive

Lots of people opt for a remortgage to consolidate debts and reduce the overall amount of interest paid, but make sure that you aren’t getting hit with an even higher interest rate than before. This could happen if you have a poor credit rating or have defaulted on a loan in the past. Remortgaging can be helpful but don’t expect it to solve any long-term financial problems.

You May End Up In Negative Equity

People who remortgage may find that they have borrowed more money than the value of the property, i.e. negative equity. This could be the case where someone has remortgaged to fund home improvements, but the renovations have cost a lot more than anticipated. External factors can result in negative equity too such as a drop in house prices in the local area.

Eligibility And Considerations for Remortgaging

Not everyone is eligible for a remortgage, depending on their financial situation, the value of their property, current market conditions, plus other considerations. Here are 5 things that could affect your eligibility for remortgaging your property:

Your credit score.
Any outstanding debts.
The amount of equity you have in the property.
If you currently have a guarantor mortgage.
The current value of the property.

However, if you are just looking to get a lower interest rate and not borrow more money, you may not even need a credit check. If you have kept up to date with your previous mortgage payments, or are still working with the same lender, these shouldn’t be too much of an issue.

Finding The Right Lender For Your Remortgage

The right lender can make sure you get the best deal possible for you and your specific needs. Whether you are looking for a better interest rate, looking to release equity, or wanting to do some home renovations, different lenders can offer different deals to suit you.

Take the time to research different mortgage lenders, and don’t be afraid to ask a mortgage advisor or broker for expert advice.

Costs And Fees Of Remortgaging

You will likely have to spend some cash to secure your new mortgage in the form of arrangement fees, valuation fees, and legal fees from solicitors or conveyancers. As mentioned earlier, some lenders will offer their own conveyancing or valuations, but make sure their deal is competitive, as you may be better off choosing another lender with better rates and shelling out for your legal fees.

If you want to exit your current mortgage deal before the fixed term is up, you may accrue an early repayment fee or other costs. Make sure that any savings you could make from a remortgage will not be eaten up by such fees.

Take the time to research different mortgage lenders, and don’t be afraid to ask a mortgage advisor or broker for expert advice.