The mortgage market in the UK is vast and well-established with various rules and regulations in place. The remortgage process can be overwhelming, especially for first timers. With this in mind it is important to have a basic understanding of the remortgage process and what will be required of the borrower.
What is a remortgage:
Remortgaging is commonplace in the UK with various lenders and brokers offering remortgage products/services. A remortgage is where the borrower switches from their current mortgage to a new mortgage whilst still retaining the same property. With this in mind, remortgaging is essentially taking out a new mortgage with the intent of using it to repay a current mortgage. Once the existing mortgage has been repaid, a new mortgage will be in force with the new lender. It is important to note that remortgaging doesn’t always require a new lender, with some borrowers opting to take out a remortgage with their existing lender, but switching to a different mortgage product. The remortgaging process can be broken down into three key steps. Firstly, the borrower will need to research the different products in the market to ensure that they are getting the best deal. Due to the fact that there are several hundred mortgage lenders, each with their own products, this can be a daunting task. With this in mind, the borrower can enlist the services of an independent mortgage broker. Independent mortgage brokers have a comprehensive understanding of the market, enabling them to source the best mortgage products from the most suitable mortgage lenders. Once a suitable product has been identified, the borrower and their mortgage broker can approach the lender. The lender will then issue an AIP or Agreement In Principle which will detail all the costs and fees associated with the mortgage. If the AIP is satisfactory to the borrower, the lender will conduct a due diligence on the borrower and the property to ensure that it is suitable for a mortgage. Once this has been completed the lender will request a redemption statement from the existing lender. This statement will detail the full amount needed to repay the existing mortgage, ensuring the new facility can be used to fully repay the existing mortgage. After the redemption statement has been reviewed and the necessary legals have been completed, the new lender will release the funds to repay the existing lender and a new mortgage will be in force with the new lender.
Important points to consider:
Timeframe: Given the fact that most mortgages have a defined timeframe, it is important to understand when your existing mortgage will become due. Obtaining a suitable remortgage can take anywhere from 4 weeks to a few months, although this will depend on the lender and the complexity of the facility. It is important to ensure that you are able to secure a remortgage before your existing mortgage becomes due, as failure to do this can lead to additional charges from your existing lender. By enlisting the services of a skilled mortgage broker, borrowers can ensure that they are well prepared to exit their existing facility within the required timeframe.
Fees and Charges: There are a number of different fees and charges to consider when taking out a mortgage or remortgaging a property. While the interest usually makes up the bulk of the charges due, the other, smaller fees can add up to a significant amount. Arrangement fees and application fees will likely be due upon arrangement of the facility, although some lenders allow the borrower to add these fees to the loan amount. Legal and valuation fees are also important to consider as these are generally paid upfront. In addition to this, exit fees and early repayment charges may apply to your mortgage. Exit fees are usually levied to cover the administrative costs associated with the exit of the facility.
Fixed-rate Period: A large portion of mortgages in the UK are fixed rate mortgages. Fixed rate mortgages ensure that the interest rate is fixed for an initial period, usually between 2 and 5 years. They are an attractive option for borrowers, because they ensure that the interest payments will remain level for the fixed period, allowing the borrower to plan for future interest payments. Fixed rate mortgages usually come with exit fees which are levied if the borrower repays the loan within the initial fixed term. These are important to consider as they can have a substantial impact on the overall cost of the facility and the profitability of the investment.
In conclusion, there are a number of different points to consider when remortgaging in the UK making it a complex process that can be difficult to understand. With this in mind, borrowers should consult with the independent mortgage broker to ensure that they have access to the best products from the best lenders. Furthermore, independent mortgage brokers can guide their clients through the remortgaging process to ensure that they are enabled to make fully-informed decisions.