Two popular questions we are asked are “When can I remortgage to a better rate?” and “When can I remortgage to release my cash?”.
Especially when you initially buy a house, the deposit amount is typically lower. This will result in having a higher rate from a mortgage lender. Always remember that lender base their mortgage rates on risk. Someone with a 5% deposit will have a higher rate than someone with a 40% deposit.
If you are purchasing a property that needs work and the price represents this, then you can quickly add value to the property. A ‘lick’ of paint, a new bathroom and kitchen and your property become more marketable, which results in a higher value of your property.
In this example, if you initially had a 90% loan-to-value interest rate and your property has increased by 15%, then better rates, subject to market conditions, are likely to be available.
There is a caveat.
Many lenders will not allow you to remortgage your house within six months of the initial purchase, which means you may have to wait to remortgage.
Another challenge is based on the mortgage product you initially secured. Does it have redemption penalties? If it does, are you better off securing a new rate now, or would it be financially beneficial to wait until the end of the redemption period? In these circumstances, we would recommend your initial rate should be penalty-free. A good option could be a tracker rate with no redemption penalties. This means you can easily remortgage once you add value to your house!
Can I Remortgage with the Same Lender?
The next consideration is the choice of a mortgage lender. Sometimes your existing lender is keen to keep your business, which can be reflected in the rates offered. In recent times, lenders’ attitudes have changed. Historically several lenders incentivised new customers by providing market-leading rates while offering their existing customer base worse rates in the hope they couldn’t be bothered moving lenders—a poor way of doing business.
The best way to balance staying with your existing lender or moving is by speaking to an Independent Mortgage Broker who is fee-free. They will be able to secure the best rates from your lender coupled with competing mortgage lenders.
The second question is typical of an investor buying a Buy-to-Let mortgage. This category of purchaser needs to release equity so they can buy another property.
Again, the six-month rule applies, and the initial product choice is crucial. The biggest challenge for this type of borrower is the rental income. It is great being able to take back their deposit when the value of the property increases, but will the rental income stack up to allow the increased borrowing requirement? This requirement can be highly challenging if the buy-to-let investor is a higher-rate taxpayer. This is partly why many landlords use a Limited Company to purchase property!
As you can see, remortgaging your house isn’t that straightforward when deciding the best products available to you. Many mortgage lenders compete for your business and have different offerings; some load their lenders’ arrangement fees while reducing their rates. Others offer free conveyancing and valuations in the same vein.
The skill in choosing the best product is balancing each deal available. This is something an Independent Mortgage Expert does so well.
Good luck.