A guide to re-mortgaging your property in the UK
Once the initial period of many mortgages has finished, you can find yourself paying more than you would like for your mortgage. So what options are available? In such a competitive market where it seems like every lender is vying for your custom, many borrowers choose to switch their mortgage periodically this enables them to take advantage of new rates of interest on offer. If however your stay on the same deal for the full term of your mortgage, you could lose out on a range of potential new benefits, most importantly including reducing the total amount you have to pay back. In some cases this could be a significant amount running into the thousands of pounds bracket.
Gone are the days where consumers arranged a mortgage with one lender and then stuck with that mortgage and the lender throughout their and its life. Mortgages were usually provided by the Building Society and the borrower was expected to go pleading to their Building Society who would then only arrange a mortgage if the borrower had held a savings account for a set period of time of say five years. In other words the lender held the 'upper hand' and the borrower was at their mercy.
However this has long since changed, as you may well have noticed! The changes started to come into effect in the mid to late eighties as the role of the Buildings Societies became less restricted and a new Building Societies Act took effect which allowed the Building Societies to compete head to head with Banks and Insurance Companies.
A kind of financial war broke out, and no not one where the clerks would meet in the car park at lunch to sort out dominances! The Banks started to see the Building Societies overtake their territory and so in turn they made moves to recover the lost ground and encroach on the Building Societies territory, they did so by entering the mortgage market. In addition Building Societies were released from the constraints that they had been under with regard to raising funds and were now allowed to raise money on the Wholesale Money Markets. All of these changes combined to make one very big difference to the market - there was now no shortage of mortgage money for the financial institutions to lend. This was a positive war for the consumer, with parties, banks and societies, tying to ‘out do’ each other for custom.
Where does this leave you the borrower?
So what should you do? The borrower is now in a very strong position, it is pretty much the borrowers choice as to where they move their mortgage as the companies offering them are only to keen to receive your custom. Best practice would be to review your mortgage arrangements every few years, or at the end of every fixed period and look at what the competition is offering in comparison with your existing lender. DO NOT be one of the large number of people who do not do this. These people are in effect subsidising the low interest rates on offer to new borrowers and are generally paying more back than they need.
Is a re-mortgage suitable for me?
Ask your self one question - am I paying to much? If you feel you are look around to what’s on offer and if there is a significant saving to be made then you should seriously consider changing your mortgage lender. However this does depend on some factors. if there are any associated penalties to be paid for early repayment or switching lender you will need to calculate what you will save against what it will add to the mortgage. it would be wise to investigate the options available to you and then take these options back to your lender as you may find they will try to offer you a more competitive rate to keep your custom if they believe you will actually switch to a competitor.
In general, if you fall into the following categories you will probably be able to make some significant savings by shifting your mortgage to another lender;
1. If you are paying the standard variable rate to your existing lender
2. If you are free to redeem your existing mortgage without penalties or fees being applied
3. If you have more than 5 years left to run on your existing mortgage deal
4. If you owe less than 90% of your properties value
5. If the amount you owe is in excess of £40,000
What saving will I make by re-mortgaging?
The first thing that you need to do is to write down your existing monthly mortgage payment. Remembering to deduct and extras, like home/buildings and contents insurance.
The second step is to look for the mortgage product that best meets your needs. If you have decided that you would like a discounted rate then decide how long you would like the discount spread over. The next step is to obtain some quotations from various lenders and write down the new mortgage repayments. You now need to deduct the new payment from your existing monthly repayment to see how much you will save each month. The next step is to look at the period of the discount and this will tell you how many months the saving will apply for. Multiply the monthly saving by the number of months of the discount and this will give you your gross saving over the period.
You now know how much you can save by moving your mortgage but you also need to take into account the fees and charges associated with arranging the re-mortgage. Obviously, if these are greater than the saving to be made then you will need to think again. The following list will give you an idea of the fees to look for although not all of these will necessarily apply in your circumstances;
1. Lenders Arrangement Fee
2. Valuation Fee
3. Mortgage Indemnity Premium
4. Brokers Fees
5. Redemption Penalty on existing mortgage
6. Legal Fees
7. Land Registry Fees
8. Local Authority Search Fee
9. Charge from existing lender to provide a reference to the new lender
Things to be aware of
1. Early redemption penalties
2. Arrangement Fees
3. Conditional Insurances