Remortgaging guide

This guide is for anyone who currently has a mortgage but would like to switch to another provider.

There are various reasons why you may want to do this; a lower interest rate, to borrow additional money from the new lender or extend/decrease the term of your mortgage.

Why remortgage?

Remortgaging means you move your mortgage from one lender to another. You don’t have to move house to remortgage. There are many reasons why remortgaging could make sense for you, but most commonly it is to save money.

For most people, their mortgage is their biggest financial commitment. If you don’t shop around for the best deal, you could be spending more than you need to.  

It’s always best to start with a conversation with your current lender. Ask them to review your current mortgage deal and see if they have a suitable product that could reduce your monthly payments.
 
If you do need to move to another lender, remember, whilst remortgaging can save you money, it will come at a price. There could be fees to pay, and, depending on your current mortgage, an early repayment charge may be payable to your current lender. There may also be legal fees to pay.

Who shouldn’t remortgage?

Despite the potential savings available, there are some situations where remortgaging is not suitable. It is a question of money, timing and your personal circumstances. Here are some reasons why remortgaging may not be appropriate or financially viable for you right now.  Think carefully before proceeding with a remortgage application if you fall into one of the following categories:

• You already have a good mortgage deal

You may find your current mortgage deal is good when you come to compare it to other available deals. However, things do change in the mortgage market, so it's worth doing some checks every now and again so you know you've got the right deal for you.

• You're locked in or have penalties

You might find that your deal isn't as good as it could be in comparison to the rest of the market, but it has early repayment charges (ERCs) that would cost you too much. In this situation, it's worth finding out when your early repayment charge period ends, and be ready to move when the situation changes.

• Your circumstances have recently changed

If your financial position has altered since you took out your current mortgage — for instance, you have become self-employed, new lenders may not be prepared to offer you a loan because you no longer fit their criteria. Again, check with your current lender first, it may be that you are financially better off to stay where you are.

• You have a very small mortgage

Once your mortgage falls below a certain amount it may not be worth switching deals. In fact, some lenders don’t lend on mortgages below £25,000. The smaller your mortgage, the bigger the effect any fees you pay to remortgage will have. In some cases, it may be worth remaining on a higher interest rate to avoid the fees.

Get ready to remortgage

There are four checks you should make on your current mortgage deal before you start:

Early repayment charge

Most mortgages have an early repayment charge (ERC) during the initial deal period and some may have extended financial penalties after the deal ends as well. If you remortgage during this period you will need to pay the charge; which can be thousands of pounds. So before you go any further, you need to know:

• Is there a charge?

• How much is it?

• What date does it apply until?

With this information, you can work out if it’s worth paying the charge in comparison to the savings you will make on your new mortgage deal. 

Exit or admin fees

You will also need to find out if you will need to pay an exit fee from your current mortgage deal. Most mortgages will have an administration fee for releasing the deeds to your solicitor, typically ranging from £50 to £200.

Your lender should only charge you these kinds of fees if you were told about them when you took out your mortgage.

How much do you owe?

When considering remortgaging, you should always start with your current lender, finding out how much you owe, your remaining mortgage term, and the repayment method (capital and interest or interest only). Without this information, you won’t know how much you’ll need to remortgage for if you go to a new lender. Contact your current lender and request the figures required to clear the mortgage on a set date. Giving them a set date means it will take into account any normal repayments you are due to make between now and then. Don’t be tempted to estimate a figure - this could mean you end up with a shortfall you’ll need to pay. 

Will you need to pay legal fees?

Legal fees are not always charged, depending on your circumstances. To check if you would qualify for free legals with us,  read our Remortgaging Free Legals Guide. 

Get your paperwork ready 

Before you start the application process, you could boost your chances of getting the best deal possible by improving your credit score and proving your affordability. You'll also need to make sure you have all the necessary paperwork, including:

• Proof of income (last three months’ pay slips or two to three years’ accounts if you are self-employed or a limited company).

• Last three months’ bank statements.

• Proof of bonuses or commission.

• Last P60 tax form.

• SA302 tax return forms if you’re a sole trader (typically between two- and three-years’ worth, depending on the lender).

Remortgaging if you are self-employed, contractor or freelance

If you’re self-employed or would struggle to prove your long-term income (for example, you’ve worked abroad or you’re on a temporary contract), then remortgaging can be more difficult. You will need to prove your income, usually at least two years of accounts. 

You should always start by talking to your existing lender, but you will still need to evidence your income if you want to borrow additional money on your mortgage. This is usually done using one of the following:

• Business accounts - you want to be able to show preferably three years of accounts, though two can suffice. Most lenders will need them to be signed off by a chartered or certified accountant.

• Tax returns - if you can’t show business accounts, then two or three years’ tax returns are the next best option. You’ll be assessed on profits, not turnover.

• Contracts – if you are a contractor, you will need to provide your current contract and employment history.

All in all, the remortgaging process typically takes from four to eight weeks to complete, although in some cases lenders may be able to complete them more quickly.