When your fixed-rate mortgage term comes to an end, you’re standing at a critical financial crossroads. If you end up slipping on to a standard variable rate (SVR), homeowners may find themselves unexpectedly facing higher monthly payments and potential financial strain if they don’t take proactive steps.
This guide will walk you through everything you need to know about remortgaging, the most common products available, and how to successfully secure your next mortgage.
Understanding the Standard Variable Rate (SVR) Trap
Most mortgages start with an attractive fixed-rate period, typically lasting one, two or five years. Once this period expires, you’ll automatically be moved to your lender’s Standard Variable Rate (SVR) – and this is where many homeowners can find themselves in a challenging financial situation.
Typically, an SVR is much higher than your original fixed rate. This means your monthly mortgage payments could suddenly increase by hundreds of pounds. To avoid this, consider remortgaging and secure another fixed rate or alternative solution.
Remortgaging Options Explained
1. Remortgage to a New Lender
Switching to a new lender can provide competitive interest rate alternatives. This approach allows you to:
- Access attractive current market rates
- Potentially reduce your monthly payments
- Benefit from special introductory offers
- Negotiate better terms based on your increased home equity.
2. Product Transfer with the Same Lender
A product transfer with your existing lender is often the simplest option. Your current lender may offer:
- Quicker processing
- Reduced paperwork
- Potentially lower arrangement fees
- Minimal disruption to your existing mortgage.
Understanding Mortgage Rate Types
When remortgaging, you’ll typically encounter three main rate types of products: fixed rate, variable rate and tracker rate mortgages. With so many different mortgage products to choose from, finding the right one for you can be dauting. Let’s deep dive and learn more about the different types first.
Fixed Rate Mortgage
Fixed-rate mortgages are essential for many home movers and investors who are looking for an element of stability with their monthly outgoings because the amount you pay is fixed regardless of market fluctuations. This can offer peace of mind during economic uncertainty.
It’s worth noting that fixed interest-rate mortgages often have early repayment charges if you want to switch before the term ends, and typically have slightly higher rates compared to variable rate mortgages. You may also miss out on potential savings if interest rates fall but for many, these considerations are outweighed by the sense of security that fixed-rate offers.
If you are considering remortgaging to a fixed rate deal, they are great solutions for budget-conscious individuals on fixed incomes, or homeowners risk-averse to payment fluctuations.
Variable Rate Mortgage
Remortgaging onto a variable rate is appealing to some clients because monthly payments can fluctuate across the loan term, meaning you could pay more or less each month. The rate your lender will charge you may change monthly and is based on their own SVR, which is influenced by the Bank of England’s Base Rate and broader economic conditions.
As a result, remortgaging onto an SVR mortgage means your monthly mortgage payments will likely be inconsistent and unpredictable. They’re also not an ideal long-term solution because they can be costly for prolonged periods of time.
Noting these factors, remortgaging onto an SVR can offer borrowers increased flexibility but is best suited to those who can absorb potential payment increases and are comfortable with financial uncertainty.
Tracker Rates
Similar to SVR mortgages, tracker mortgages are an option for individuals who are not concerned with changing monthly payments.
Tracker mortgages follow the Bank of England’s Base Rate, therefore rise or fall along with it. They’ll often start with lower interest rates compared to fixed rates, but as they follow the base rate, will likely fluctuate over time. Because of this correlation, the changes are typically more predictable which can appeal to some borrowers who are refinancing.
This type of mortgage is available in two ways, there are either ‘lifetime’ trackers for the life of the mortgage and ‘term’ trackers, which may be for 2 or 3 years.
If tracker mortgages appeal to you, it’s important to remember the degree of uncertainty surrounding how much you’ll repay on a monthly basis. Unlike a fixed-rate mortgage, you have a lack of control as you can’t predict future costs. What’s more, some tracker deals may also have penalties for switching before the term ends.
Due to their unpredictable nature, tracker mortgages are most suited to those who are comfortable with potential payment variations.
What do I need to look out for?
For clients exploring the remortgage options available to them, it’s important to take note of your current mortgage product end date. This is the date that the current fixed or variable date ends, where we suggest you have an alternative mortgage in place ready to go.
Additionally, remortgaging can have associated costs with it. Potential fees to be mindful of include:
- Arrangement Fees – These are fees added by the lender for arranging your new mortgage. Typically, this figure can be up to £1,500 but the good news is that sometimes it’s free! If a fee is required, it can often be added to the mortgage.
- Valuation and Legal Fees – When you remortgage to a new lender, a valuation will be carried out to determine the value of your home to ensure it is adequate to secure the loan against. There will likely be valuation and legal fees associated with drawing up the paperwork, but some lenders offer cashback to offset these costs.
- Potential Penalties – If you choose to remortgage before the term ends, you may incur early repayment charges (ERCs) on your existing mortgage. Your original mortgage paperwork will list whether ERCs apply to you.
What documents do I need to prepare for remortgaging?
Mortgage Statement
When it comes to remortgaging, lenders will need to see the details of your current mortgage via a mortgage statement. This contains key information such as your outstanding balance, current interest rate, and any early repayment charges.
If you are unable to find this, Emily’s Mortgage Services can help.
Proof of Income
Just like when you applied for your current mortgage, lenders will want to assess your income to ensure your new mortgage is affordable. The required documents depend on your employment status:
- Employed: Typically, you’ll need three months’ payslips (if paid monthly. Talk to our team if you are paid differently) and your P60.
- Self-Employed or Limited Company Directors: You’ll need SA302 forms and tax overviews from the last two years. Some lenders may also request an accountant’s certificate or full audited accounts.
Proof of Address & Identity
To verify your identity and address, you’ll need:
- A recent utility bill, council tax bill, or water bill.
- A valid form of identification, such as a passport or driving licence.
Bank Statements
Lenders require bank statements to assess your financial commitments including personal loans, car loans, and credit cards. They will also cross-check your declared income against your bank transactions.
Having these documents ready will help to speed up the remortgaging process.
Timing is Everything
Most lenders will honour a new remortgage offer for a period of up to 6 months before your current term’s end date. Within this period, you’ll have time to research and compare what deals are available, apply to secure a new rate and protect yourself against potential last-minute rate increases.
Why Use a Mortgage Broker?
Engaging the services of a professional mortgage broker offers numerous advantages. In addition to peace of mind, one significant advantage of using a broker – like the team at Emily’s Mortgage Services – is that they have exclusive access to deals that are unavailable to the general public.
Emily’s Mortgage Services provides a truly personalised advice tailored to your unique financial circumstances, thereby helping you navigate the increasingly complex mortgage criteria that lenders implement. Rather than spending countless hours researching and comparing mortgage products yourself, our team will efficiently handle this process, potentially saving you significant money through their industry knowledge and expertise.
It’s also part of the advice process to carry out a lot of the heavy lifting during the process, taking the stress away from you. We’ll submit the application on your behalf, take care of the paperwork and remain on top of the application as it progresses.
Additionally, a broker’s value extends to demystifying complicated mortgage terms and fine print, ensuring you fully understand your obligations before committing to any financial agreement.
Emily’s Mortgage Services will act as your dedicated advocate in the complex mortgage market, maximising your chances of securing the most suitable remortgage deal available.
Proactive Remortgaging Can Save You Money
Remortgaging isn’t just an administrative task, it’s a powerful financial strategy that could save you thousands of pounds over the lifetime of your mortgage. The key is to start early, understand your options, and not automatically accept your lender’s SVR until thorough research has been completed.
Remember, every financial situation is unique. What works for one property owner might not be the best solution for another. Take the time to assess your circumstances, consider getting professional advice for the team at Emily’s Mortgage Service’s, and make an informed decision that supports your long-term financial goals.
Emily's Mortgage Services LTD 