People across the UK arranged more than £4.4 billion worth of remortgage lending last month, the highest figure recorded in the month of February since 2009.
The value of gross remortgage lending is more than a quarter (26%) higher than February 2015’s figure of £3.5bn.
What’s behind this trend? There was actually a small drop in remortgage lending from the January figures, following a pattern that has been established since 2010. However, many observers suggest that the root cause is growing consumer confidence, thanks to return to a healthy, post-recession market.
Getting a mortgage in the first place can be a hassle, involving chasing around for providers, long and detailed applications, and inevitably solicitors and their fees. Remortgaging can mean going through the whole process again. So what is making remortgaging so popular right now?
There are several reasons for remortgaging. One, of course, is to take advantage of the growth of equity built up thanks to rising house prices. Remortgaging on the strength of the new value of a home could provide cash for an extension, school fees or investment. The average amount of equity withdrawn by remortgaging is increasing, and rose by 11% from £25,955 in January to £28,685 in February.
The other powerful factor behind the growth of remortgaging is simply to save money. Remortgaging your property can save hundreds – possibly thousands – of pounds each year, particularly if your property value has increased, your current mortgage is about to expire or you can negotiate a better interest rate.
Why your rate could be better
There are several reasons why you could get a better rate by remortgaging now. The first is simply that rates are very low right now, and probably as low as they are going to get.
The second reason is that the value of your home has probably increased, meaning that you will be borrowing a smaller percentage of the total value. This is known as the Loan-to-Value ratio, and the higher the ratio (that is the smaller the percentage of the total value you need to borrow) the better the rate you are likely to be offered.
How to calculate your Loan-To-Value
- Work out the new value of your home – a service like Zoopla can help
- Divide your outstanding mortgage amount by your property’s current value.
- Multiply the result by 100
- Your outstanding mortgage is £150,000
- Your lender thinks your property is worth £200,000
- 150,000 divided by 200,000 = 0.75
- 0.75 x 100 = 75 – so your loan-to-value is 75%
The third reason for remortaging ? One that always applies. When you take out a new mortgage, you normally get an introductory deal – for example a low fixed or discounted rate or a low tracker rate for the first few years of your mortgage.
Introductory deals normally last for between two and five years. Once the deal ends you’ll probably be moved onto your lender’s standard variable rate, which will usually be higher than other rates that you might be able to get elsewhere.
If your current mortgage introductory deal is coming to an end, your rates may be going up. It’s time to shop around again – but bear in mind that if you only have a small outstanding mortgage the amount you stand to save may be too low to make switching worthwhile.
Check the costs
Its time to start checking the market for the best mortgage deal. There are plenty of websites that offer price comparisons, and can help you find a deal that looks better for you.
But before you leap into a remortgage deal, check out the costs. Some lenders might offer fee-free deals to tempt you, but if they don’t you’ll have legal, valuation and administration costs to pay. There may be exit costs and fees associated with leaving your current mortgage.
What might look like a money saving deal could end up losing you money if you don’t do your sums first.
Your mortgage is a major investment, and with all investments, it is important to get professional help. A mortgage broker should have access to deals that don’t appear on the market, and which could be even better than those you see advertised.
If you need any help with thinking about changing your mortgage contact our professional team today.
Remember your home may be at risk if you do not keep up with the repayments for a loan or mortgage secured on your property.
The financial conduct authority does not regulate wills, taxation and trust advice.
Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change.