The most challenging parts of being on the property ladder are getting on it and staying on it. Staying on it straddles many areas such as employment status, personal circumstances, discipline, the property market overall and financial maturity. A simple rule that I have adopted is that you should never take money out of where you live. The aim should be to pay off your mortgage as quickly as possible and ideally before your 50 or earlier. Taking money out of your home means you are extending your lease of how long you will "have" to work. My dream is to be mortgage-free in my 40's or just before my 50's.
As you would have seen mortgage rates are now at record low levels, following two Bank of England rate cuts in March to bring the base rate down to 0.1%.
Borrowers on a tracker, discounted, or variable rate mortgage may have already benefited from this rate drop. However, those borrowers whose mortgage deal is nearing its end, or those currently on an uncompetitive standard variable rate (SVR), should review their situation as there are some very competitive products on the market, with potential savings.
A remortgage is where you take out a new mortgage on a property you already own - either to replace your existing mortgage or to borrow more money against your property. You should consider remortgaging if:
Your current deal is about to end
You are looking for a better rate
You want to overpay, but can't do this on your current mortgage
You want to borrow more
Your home has increased in value, and your loan-to-value (“LTV”) ratio means you can get a better deal.
My first experience of mortgaging
In 2018, the time had come for me to remortgage. The property value had increased marginally. Whilst considering remortgaging, I looked at my LTV, product fees and whether I wanted to move houses any time soon.
My LTV at the time was lower than the 90% that I started with, which was good but I was not seeing any better rates at the time. I considered whether I would be able to move homes by looking at my savings and equity in my flat and concluded it was not the right time.
When looking at my remortgage options, I considered whether to fix my rate for two or five years. I opted for two years as I had it in my mind that I wanted to get another home and did not want to tied down for five years. Fast forward four months, I learned that you could transfer your mortgage to another property through a process called porting, which I discussed in my post on buying my second home.
I spoke to my mum's financial advisor who came up with some additional options, but I opted to do a product transfer with my existing bank as I would not have to pay any additional fees.
My second experience of remortgaging in the same year
My wife and I decided it was time for us to get a larger place as we had to transfer our flat to a buy to let and port our existing mortgage to the new home. The calculations were none stop, as if the LTV of our existing flat was any higher than we anticipated we would not have been able to move homes. We also had some equity in our flat which was to be our investment property which we were going to use to buy the new place. Our mortgage advisor helped us with the whole process from finding a buy to let mortgage and porting our existing mortgage to the new home.
I write all of this to say that remortgaging can be simple, like just getting a better rate. Alternatively, it can be complicated where you are taking out money from your flat, porting an existing mortgage to a new home and taking out buy to let mortgage simultaneously.
A good financial advisor can help you with all of your requirements where they do the heavy lifting, and you watch and point. In my example, I did much mental lifting as you can read in my blog post on ‘Buying a second home’.
Lenders have adapted
Due to uncertainty, many lenders initially reacted to the coronavirus crisis by restricting the products available, (particularly to those borrowers with a high LTV ratio) and remortgage applications faced operational constraints such as an inability to do physical valuations. However, optimism has started to return, with lenders reintroducing a more comprehensive range of products and adjusting their processes to overcome problems, for example, by using automated 'drive-by' valuations.
In such a fast-changing environment, those who are considering remortgaging over the next few months would be well advised to assess their options sooner rather than later. Remortgaging can take around eight weeks, so it's the best set the wheels in motion.
Advice is essential
There are pros and cons to remortgaging, and it won't be right for everyone. The market is more complicated right now, and getting good advice is vital. Mortgage Advisers have expert insight and knowledge of the market. As well as giving you advice on whether a remortgage is suitable, a financial advisor will explain the costs, outline potential implications and guide you through the mechanics of remortgaging.
The value of your home can go up as well as down, so be sure to keep an eye out on your local market. Doing your research will give you the information you need to establish your LTV. The following formula can calculate a LTV:
Outstanding mortgage loan/ property value * 100 = Loan to value
Please note that the property value of your home should be based on recent local comparable sales transactions of similar properties sold with similar features. The more recent the transaction, the better and be careful not to be too optimistic on your values.
The lower your LTV, the better the rates you can get from banks. To lower your LTV, you could consider paying an extra amount of money into your mortgage each month. It doesn't matter how small, £100 extra a month can still go a long way. Extra payments into your mortgage will not only allow you to pay off your loan quicker, but it will reduce your interest payments and potentially lower your LTV.
Finally, do not be afraid to change banks even if it means you have to pay mortgage fees to the new bank. If for instance a new bank requires you to pay £1,500 in mortgage fees and they will give you a competitive rate, this may work out better for you over your fixed period than it would be if you stayed in your existing bank and not pay any fees. Don't be shy to get a calculator out and work out the savings you could achieve by paying some fees upfront and getting a better rate; you would be surprised.
Financialadvisers4u has been our go-to people for mortgages and investment advice over the past few years and their contact details can be found below:
Michael Philpot Cert CII (MP) IMC, Financial Adviser, Direct Line: 0207 429 0322, http://www.financialadvisers4u.com.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE