Remortgages

Remortgaging is fairly simple in theory; an existing home loan is replaced by a new loan (remortgage) based on the value of property. Remortgage funds are used to repay money owed on the original mortgage (a type of creditor) often secured on a more preferable rate. In many cases remortgaging can be a form of equity release resulting in surplus funds being made available for other purposes.

There are many reasons why a homeowner may look to remortgage their property and a number of factors to take into consideration.

Remortgage definition / What does remortgage mean?

Those with a mortgage can look to remortgage at any time if the homeowner passes the affordability test including the remortgage maximum LTV. The original loan is traditionally secured against a property and the mortgage provider is a creditor. If a property was worth £700,000 with an outstanding mortgage of £350,000, there is a £350,000 equity stake which can be converted into money. It should be possible to remortgage the property at a 70% loan to value which would raise £490,000. Out of this remortgage loan, £350,000 would be used to pay off the original mortgage leaving a surplus of £140,000.

When switching remortgage lenders, there will be a remortgage fee to pay to the lender. The level of mortgage fee will depend whether the transaction is with the original mortgage provider or a third party. Very often original mortgage providers looking to offer a remortgage deal will charge a reduced fee to retain the business and the long-term returns.

Interest only remortgage

An interest only remortgage is a home loan where interest is paid on a regular basis throughout the term of the loan. The remortgage loan capital is repaid at the end of the term and while not as common today there are still opportunities to secure interest only remortgages. The mortgage affordability calculation will determine whether the cost of the property can be supported by the applicant’s income with the option of adding additional property/assets as security. The fee for interest only remortgage deals should be no different to capital remortgage arrangements – either way the outstanding loan will be repaid at the end of the term.

One attraction of an interest only remortgage is the chance to benefit from any increase in the value of the property. The relatively low remortgage payments, compared to capital and interest mortgage repayment terms, will assist cash flow in the short term. At the end of the term, the property will hopefully be worth more than the acquisition price. In some cases this will allow property owners to remortgage again on a higher value, potentially releasing yet more equity from the property.

Remortgage advice

The best remortgage advice will take in an array of issues such as affordability, outstanding mortgage, income and property valuations. By utilising Enness contacts with high street banks, private banks and niche lenders, there are few scenarios in which our brokers are not able to offer detailed remortgage advice.

The level of remortgage loan available will depend upon the complexity and size of the current mortgage and property. In some cases the remortgage fee will also include the cost of revaluing a property. As a mortgage broker, it is vital that customers receive value for money remortgage advice. For instance, there may well be situations where the timing is not right for a remortgage deal and this advice should be communicated to the customer.

Mortgage and remortgage advice is covered by the Financial Conduct Authority (FCA), the financial regulatory body for the UK financial sector. The FCA ensures that applicants are only offered mortgages and remortgages which suit their particular circumstances.

How to remortgage

The mechanics of remortgaging an existing home loan with improved terms are straightforward. The first thing to do is to compare the terms of the current mortgage loan against remortgage rates available in the market. There may be repayment penalties with the current mortgage provider (creditor) which may prevent the property from being remortgaged. The level of remortgage fee, headline interest rate and the speed equity in a property can be converted into money will vary on a case-by-case basis.

As an independent mortgage broker Enness is able to talk to all remortage lenders in the market to secure the best remortgage deal. Our experience tells us that some lenders specialise in certain types of remortgaging so we know where to go, who to talk to and the information required. Often the need for a remortgage can be time critical therefore finding the right lender for a specific situation is vital.

How does remortgaging work

The process of securing remortgage finance to replace existing mortgage funding is fairly simple in theory with homeowners swapping one mortgage creditor for another mortgage creditor. While there will be a remortgage fee this is often negotiable. When applying for remortgage funding all customers will need to pass the mortgage affordability test. Where customers have a fairly complex financial setup it can be difficult to secure a remortgage from high street banks. This is why Enness tend to use private banks and niche lenders for non-traditional mortgage situations.

After agreeing a remortgage package the original mortgage will be repaid in full and the charge over the property transferred. After remortgaging, customers may be able to withdraw significant equity from the property.

When seeking remortgage finance the headline rate and the loan to value ratio are two important variables to consider. The level of remortgage interest and the loan to value ratio will depend upon a number of factors such as the value of the property, customer’s income, asset security and affordability. As an independent mortgage broker we have contacts with all mortgage lenders with particular focus on specialist remortgage providers.

How long does a remortgage take

When the required remortgage paperwork is in place it does not take long to replace an existing mortgage loan. Tasks such as revaluing property are just one action required to clarify the maximum loan to value ratio for remortgage funding. When switching from one creditor to another, i.e. repaying the original mortgage with remortgage finance, there will be a fee to pay as well as assistance from a solicitor. The transfer of remortgage funds from one mortgage provider to another is straightforward, the withdrawal of surplus equity is immediate and nowadays real estate appraisal procedures are quick and simple.

Time taken to secure a remortgage deal will vary but as an independent mortgage broker Enness have years of experience in this area. The more complex financial situations involving overseas currencies, global assets and other outstanding loan arrangements will extend the remortgaging process. Securing the most competitive remortgage rates and most appropriate mortgage deal structure, however long it takes, is essential in the longer term.

How soon can you remortgage

When remortgaging your property, traditional lenders work on a six-month minimum ownership period. There may be issues if a buyer tries to take out a mortgage on a property which the seller has owned for less than six months or indeed remortgage a property which was recently inherited. Enness have contacts throughout the traditional banking sector, private banks and niche mortgage lenders. Private banks and niche mortgage lenders tend to be more welcoming of non-traditional remortgage requests. Therefore, in the majority of cases Enness will be able to arrange a remortgage deal any time after ownership of the property has been confirmed.

How does remortgaging work to release equity

Remortgaging to release equity in a property is a way to raise capital. The homeowner may have paid back a significant part of the original mortgage and is looking to raise new finance. Alternatively, if the value of the homeowner’s property increased significantly then it is possible to remortgage and release part of the enlarged property equity. Funds raised via a remortgaging deal are used to pay off the outstanding debt on the original mortgage with surplus funds returned to the property owner.

When using high street banks to remortgage a property, the homeowner will still need to pass the mortgage affordability test. If the homeowner has insufficient income to cover future mortgage payments the application would likely be refused. However, private banks and niche remortgage lenders tend to look at the wider picture including assets, income and potential for the future. The loan to value ratio on a remortgage deal is unlikely to be more than 70%.

Can I remortgage my house to buy another property

A remortgage (a form of refinancing) involves the process of repaying one mortgage with funds raised from a new mortgage. Remortgaging is often used by property investors to release equity which can be used to invest in other property. A successful remortgage application will depend upon the level of equity in the property and the homeowner’s ability to cover future mortgage repayments. For example, if there was no mortgage on a property worth £500,000 then in theory the homeowner could raise around £350,000 in mortgage funds – on a 70% loan to value ratio.

Traditional mortgage lenders still require the homeowner to pass a mortgage affordability test and tend not to include rental income from any additional properties. As an independent mortgage broker Enness have access to the full range of mortgage lenders. Private banks and niche mortgage lenders are not governed by the same financial restraints as traditional mortgage lenders and can take a more liberal approach to remortgaging to invest in additional property. The mortgage applicant will still need to demonstrate regular income to cover mortgage payments but future rent income may well be taken into account.

About Banks / Lenders

When looking to remortgage a property there are three types of finance available. These are high street mortgage lenders, private bank mortgages and niche mortgage finance companies. High street remortgage lenders have a strict affordability calculation and even for remortgages they will require evidence of income to cover future mortgage repayments. When looking for vanilla remortgaging deals high street banks can still be competitive and will often be the first port of call.

Some high net worth clients looking for remortgage deals have more complicated finances with income streams and assets which are not always appreciated by high street banks. In this scenario private bank lenders and niche lenders tend to be the more appropriate parties to approach. These lenders are not covered by the same strict affordability calculations of high street banks. Many will undertake remortgage financing as a means to attract high net worth individuals and build a long-term relationship. This could involve transferring assets under management and using other services provided by the private bank/niche lender.

Where customers have complicated personal finances, a premium on traditional high street mortgage rates is likely. This takes into account the bespoke nature of the remortgage deals which are considered on a case by case basis.

What are the common reasons for Remortgaging

There are many different reasons to remortgage a property including:-

• End of a discounted mortgage rate period
• Better mortgage rates are available
• Increase in property value could reduce mortgage loan to value ratio and attract lower mortgage rate
• Securing a fixed mortgage rate ahead of an expected increase in base rates
• Replacing an inflexible mortgage deal with no ability to increase mortgage payments
• Switching from an interest only mortgage to a repayment mortgage
• The opportunity to increase mortgage borrowings with a new lender
• Switching to a more flexible mortgage

High net worth individuals tend to remortgage property assets as a means of raising capital for new ventures and new investments. As UK base rates are relatively low at the moment, remortgaging rates are also relatively low offering the ability to make use of cheap finance.

Remortgage for debt consolidation

Using new mortgage finance as a way to repay expensive debts can reduce long-term financial liabilities. Remortgage rates tend to be a fraction of credit card rates, often the first creditors to be repaid when pursuing debt consolidation. Even though a remortgage will increase monthly payments it is an efficient way to consolidate high interest loans at reduced rates. Even taking into account the payment of a remortgage fee there is the potential for significant savings. Repaying high interest creditors using cheap finance is very attractive in the current economic environment.

Remortgage for home improvements

Securing a remortgage loan to fund home improvements such as an extension, additional floors and rooms can significantly increase the value of a property and the homeowner’s equity content. Remortgage finance can save money as the debt will attract a lower rate compared to development loans and bridging finance. Homeowners will still need to take into account any remortgage and repayment fee, with refinancing funds used to repay the original mortgage creditor leaving extra to fund home improvements. Further down the line, the home improvements might facilitate additional remortgage financing on a higher property value.

Remortgage buy to let

Whether looking to remortgage to invest in buy to let property, or remortgage an existing rental property, investors need to consider any early repayment fees or penalties. The max ltv remortgage rate will depend upon the value of the property, equity in the home, interest rate (fixed or floating rate), monthly repayments and affordability. Traditional remortgage providers have taken a step back from the private rental market with more innovative private banks and niche lenders filling this void.

Renting property in the UK has been a lucrative investment in recent times. While the annual percentage rate of return, including rent and capital appreciation, may have fallen recently the private landlords sector is still active. The opportunity to remortgage buy to let property, on attractive payment terms, has seen many investors expanding their rental portfolios. Even reductions in tax incentives and tighter regulations have not affected the ambitions of many private rental landlords.

Remortgage costs/fees

The costs/fees to remortgage property will depend upon the size of the mortgage loan and the structure of the refinancing. As an independent mortgage broker Enness can assist with organising a solicitor, conveyancing and contact appropriate mortgage lenders. Taking out a new mortgage to repay an existing mortgage creditor will require a real estate appraisal to confirm the value of the property. Traditional mortgage lenders rarely exceed the 70% loan to value ratio although private banks and niche mortgage providers are more flexible.

Where a customer’s financial circumstances are relatively complicated, private banks and niche lenders tend to be more accommodating. Remortgage applications are considered on a case-by-case basis and may involve a small cost and interest rate premium on vanilla high street mortgage rates. As an independent mortgage broker Enness is able to negotiate rates with more than 300 independent lenders. This encourages a degree of competition to secure the best remortgage terms.

Remortgage Interest rates

Remortgage rates will be considered on a case-by-case basis, taking into account the customer’s personal financial affairs. Other factors which will impact remortgage rates include regular income, assets, equity and plans for the future. As an independent mortgage broker Enness have secured attractive remortgage rates for many customers. Many years of experience arranging remortgage finance and long-term relationships with mortgage lenders ensure that Enness brokers will secure the best deals on the market.

Private banks and niche lenders tend to take a long-term view with remortgage deals involving high net worth individuals. Attractive mortgage terms often plant the seed for a long-term relationship which can take in other financial services offered by lenders. Such is the variation of scenarios involving remortgaging deals that no two deals are ever the same. Therefore, comparing headline remortgage rates does not always give the true picture.

Remortgage deals

Remortgage deal terms will vary from customer to customer but there are mortgage loan providers for all scenarios. While the fee and remortgage rate are relatively static for vanilla deals any loan involving high net worth individuals with complicated finances will be considered on a case-by-case basis. The remortgage rate tends to be fixed but some customers prefer floating rate arrangements.

Enness brokers have remortgage market knowledge above and beyond that of our competitors. This makes Enness the first port of call for many high net worth individuals looking to remortgage assets. Remortgage deal structures can vary significantly as can repayment terms and headline rates. Knowing who to talk to, how to present a customer’s finances in the best light and the most appropriate deal structure for the client’s situation saves valuable time.

Remortgage valuation

In order to secure new mortgage finance a remortgage property valuation is required. This is central to any mortgage transaction and will confirm the current market value of the property and scope for raising additional funds. Enness brokers regularly work with customer advisers to arrange property revaluations and work out the appropriate level of remortgage finance. Enness offer customers the opportunity for a no obligation chat to discuss mortgage refinancing options and current mortgage rates.

Stamp duty on remortgage

Stamp duty (now known as stamp duty land tax) on remortgage deals is not relevant unless the property title is transferred as part of the new mortgage loan. Under normal circumstances a remortgage would not prompt a change in legal title. When a mortgage provider holds a charge over a property this is not the same as legal ownership.

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