A guide to remortgaging

Remortgaging when your home has increased in value

Has your home increased in value since you took out your mortgage? If so, you may be able to access a better deal by remortgaging even before the end of your term.

That’s because your LTV (Loan to Value) ratio has improved. It means you have more equity in your home.

To calculate your LTV ratio:

• Divide the amount you have left on your mortgage by the market value of your property. For example, if you owe £200,000 on a £280,000 house, do 200,000 / 280,000 = 0.71.
• Convert this to a percentage by multiplying by 100. In this example, 0.71 becomes 71%. This is your LTV ratio.
• Compare this figure to your original mortgage deal. Mortgage lenders usually have different deals for loan-to-value brackets at 60%, 70%, 75%, 80%, 85%, 90% and 95%. If you’ve crossed into a new bracket, you might be in a good position to remortgage.

Bear in mind that changing your mortgage before the end of your term will usually incur redemption fees. You’ll need to assess whether the cost of any redemption fees outweigh potential savings. Also look at how these fees might affect your short-term finances. 

Another option might be to add the cost of redemption fees onto your new mortgage loan if you still stand to save on interest payments over the longer-term.

Remortgaging to fund home improvements

Remortgaging isn’t always just about getting a better deal. Lots of people pay for home improvement projects by increasing their mortgage too.

Find out more in our guide to remortgaging for home improvements.

Remortgaging due to an unexpected change in circumstances

Sometimes, life events mean you need to revisit your mortgage arrangements sooner than you expected. For example, if you:

• Relocate
• Change your employment
• Move in with a partner
• Switch your residential mortgage to a buy-to-let mortgage
• Go through a divorce or dissolution of a civil partnership
• Need to make room for a growing family

If your change in circumstances mean you’re struggling to keep up with your repayments, let your lender know as soon as possible. This way, you’ll get any support you need and have a better idea of your options.

Please note that most buy-to-let mortgages are not regulated by the Financial Conduct Authority (FCA).

Remortgaging to make overpayments

You may look to remortgage because you wish to make overpayments but can’t do so under your current deal. 

Making overpayments can reduce the amount of interest you pay over the lifetime of your loan, or reduce the payment term. You can usually overpay by making a one-off payment, or by increasing your regular monthly payments.

You may find yourself able to make a one-off overpayment if you:

• Retire and take part of your pension as a tax-free lump sum
• Receive a windfall or inheritance payment
• Benefit from the return on an investment

An increase in salary (or reduction in monthly outgoings) may mean you’re able to divert more money into overpaying your mortgage on a regular basis.

If you’re thinking of remortgaging to make overpayments, remember to include the costs of any redemption fees in your projections. 

Many high-street lenders allow overpayments of up to 10% of the outstanding amount each year during the term of a fixed rate mortgage. Once the term ends and you’ve switched to the standard variable rate, many lenders won’t apply any restrictions. This is only a guideline. Some lenders will charge for overpayments at every stage of the mortgage.

Remortgaging to fix your monthly payments

Mortgage interest rates are influenced by the Bank of England (BOE) base rate. They can also be influenced by LIBOR: The London Inter-Bank Offered Rate. That’s an interest-rate average calculated from estimates by the leading banks in London. Each bank estimates what it would be charged were it to borrow from other banks. Lenders typically increase or decrease their loan rates in line with this measure. 

Small changes to the base rate of interest can mean significant changes to your monthly payments (unless you’re on a fixed-term deal). To show the potential impact, here’s how your monthly payments would be affected if you owed £100,000, with 15 years remaining on your mortgage:

The base rate of interest is decided by the Monetary Policy Committee (MPC). The MPC meets around eight times a year to discuss base rate, taking into consideration factors such as inflation, economic growth and UK employment rates. 

The impact an interest rate rise has on your mortgage will depend on what type of mortgage you have, and when your deal comes to an end.

Fixed-rate mortgages

Fixed rate mortgages are not impacted by changes to the BOE base rate. This gives you the security of knowing exactly how much will be leaving your bank account each month.

Even if you have a fixed rate mortgage deal, it’s a good idea to plan how you would meet your monthly payments if they increased with interest rates the next time you remortgage. 

The base rate of interest can go down as well as up. That means your monthly repayments could rise or fall if your mortgage has a variable rate of interest. 

You’ll need to weigh up the possible savings you might make in interest against the security of knowing what your monthly payments would be on a fixed rate deal.

Redemption fees

It’s worth noting that you may have to pay redemption fees if you leave your current mortgage deal before it’s due to end. You may want to end your current deal for any of the reasons we’ve discussed so far.

Redemption fees are often tapered as a percentage of the remaining mortgage balance, for example:

• 5% of the remaining balance if you have 3 years left of your remaining deal
• 3% of the remaining balance if you have 2 years left
• 1% of the remaining balance if you have 1 year left

If you leave your existing deal before the agreed period, the lender may also ask you to repay any incentives originally provided to you. This may include free valuation fees, legal fees or cashback offers. Check the terms and conditions of your current arrangement when considering your options. 

Not all mortgage deals carry redemption fees so it’s important that you consider this when choosing a lender. 

It may still be beneficial for you to move to a new mortgage deal despite having redemption fees to pay. For example, the savings you could make over the term of a fixed deal may be more than the redemption fee due if you exit your existing deal early. 

The solution that’s right for you will depend on your individual circumstances. It can be helpful to get professional advice before you make any important financial decisions.

Taking advantage of your professional status

If you’re a trainee or qualified professional (such as a lawyer, doctor, dentist, or teacher), you may be eligible for a ‘professional mortgage’. 

Lenders offering this type of mortgage will take your professional status into account and may offer you a higher loan at a preferential rate. Qualification criteria may vary between lenders but typically includes factors such as age, professional qualifications, or registration with an appropriate governing body.

You can find more in our mortgage guide for doctors, mortgage guide for dentists and mortgage guide for teachers.

How we can help

Identifying the right mortgage for you and submitting a successful application is no mean feat. As well as the complexities involved, it’s time consuming, and can be costly if mistakes are made. We’re here to help.

Our expert mortgage team can offer fee-free mortgage advice and help you find the deal you deserve. We will be paid a fee by the lender upon completion of the loan.

We can also bring you access to exclusive deals which are only available to professionals.