What is a Remortgage?
Before discussing the issues and next steps, it is vital to understand that a remortgage is a process of getting a new mortgage on a property you already own. Let’s say you own property X that you have mortgaged to A, it is possible to remortgage the same property X to get another mortgage from B. This process is known to become popular in the United Kingdom for its fluidity.
Why should you think of a Remortgage?
Remortgages can be a great way of saving money when you have paid off more of your mortgage, your property has increased in value or you’re worried about a mortgage interest rate rise. Another benefit is as you repay your mortgage, you will build up the level of ‘equity’ you own in the property. An example could be if you put down a 5% deposit when you bought the property, you owned 5% of it outright. But over time, through a combination of paying off the mortgage debt and your property rising in value, you might now own 20% outright. When you bought, you will have used a 95% LTV mortgage, but now you would only need to borrow at 80% LTV. In general terms, this means that as you will be borrowing at a lower loan-to-value (LTV) mortgage lenders tend to offer better rates as they view the loan as being less risky.
Why should you re-think a remortgage?
Before considering a remortgage you must be aware of the following:
- New Rules: as the law stands presently new rules introduced by the Financial Conduct Authority (FCA) might mean it is now easier for some people stuck on more expensive mortgages to switch.
- Low Credit Rating: there is also the issue of low credit rating that might make it difficult for you to get a remortgage.
- High loan to value: the property market is always fluctuating; the value of your property might go up or down. This means when you come to switch your mortgage you could be assessed on a higher loan to value (LTV), which can reduce your chances of successful remortgage.
- Low income (Covid 19)- many of us have lost our jobs and are struggling to make ends meet, during these difficult times the pandemic has made things tougher. If you are in this position then a remortgage might not be a good idea. Income does not technically make up part of your credit score. But a drop in income could mean you fail the affordability assessment.
- Previous arrears and or missed payments: the new rules make it difficult for those who have missed payments or have had arrears in the previous 12 months to get a remortgage. You must seek legal advice if you are unsure about your circumstances.
Is there a lot of legal work involved in a Remortgage?
The short answer is yes and you will need a conveyancer for all the legal work. They will conduct thorough background checks including preliminary and continuous conduct ID checks, carry out further property searches if your lender requires them, and check any terms in your lease or mortgage that need to be flagged to you. Lestons Ltd. can also help you if you have any specific queries.
In summary
A remortgage is a lucrative option if you want to make some money off your property, however, there are also risk factors involved and high legal expenses to be incurred. It is advised that you consult with a legal advisor or access free legal aid before making any decision based on your circumstances.
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