Remortgaging for Home Improvement - Things to consider

An Overview

When you took out your original mortgage you probably thought that was you done for the next 25 years. But in fact, you can change the kind of mortgage you have every few years, once your initial fixed period is over and you are on your lenders Standard Variable Rate (SVR). 

Usually, when you get your first mortgage you tend to fix the interest rate for 2 to 5 years. During that time if you were to change your deal you would be charged Early Repayment Charge (ERC) which is around 2% to 5% of the total loan.

But once your fixed period has ended you are free to switch your mortgage over to a different deal with your current lender or move to an entirely new lender offering better rates.

If you stick with your current lender they will offer you their Retention Rate, which is usually a higher interest rate than you could secure if you moved to a new lender. Searching for the right deal for you is something we do every day at Sussex Mortgages, so just give us a call to see how much money you could save with a better rate. 

Another advantage of remortgaging is that you may be able to access some of the increased value that has built up in your home over the years. Releasing Equity, though, may increase your monthly payments too, so it is important that you check that you can afford it. This is something a mortgage broker can do for you before you decided on a new mortgage deal.

Who Is Eligible To Remortgage?

You are eligible to remortgage if: 

  • Your income has increased since you first took out your mortgage.
  • The amount of equity available in your property has gone up.
  • Your credit rating is good and your credit file is free of any errors like incorrect address or date of birth.
  • The amount you wish to borrow is within the lender’s criteria for maximum LTV (Loan to Value percentage, usually a maximum of 90%) 

Why Should I Remortgage?

There are many good reasons to Remortgage your property; perhaps you want to increase your mortgage to buy a holiday home or a Buy-to-let rental property. You may just wish to save money by taking advantage of lower interest rates or free up some cash to fund home improvements like a new kitchen, or loft conversion or extension. 

Concerns about increasing your debt

One concern people often have is that by releasing equity for home improvement they are increasing their debt levels. But if that money is released to improve the quality of your property then you are adding value to the property and reducing your LTV over the long term, as the property should increase in value in relation to the debt borrowed. 

How To Arrange A Remortgage

Remortgaging your home is generally more straightforward than it was when you took out your existing mortgage as all the main paperwork and affordability checks have been done. There are no estate agents to deal with or even much paperwork, your broker will handle everything on your behalf.

Key documents needed for a remortgage:

  1. Check out how much your home is worth on Zoopla
  2. Last 3 months bank statements
  3. If you are employed gather up your last 3 months payslips
  4. If self-employed, your last 2 years accounts (SA302s) 

Working out your LTV percentage (Loan to Value)

LTV is often quoted but it’s not always obvious how to work it out.

First take the current value of your property and then divide that by one hundred, to get the value by which you will divide your current mortgage total by, that will tell you your LTV percentage.

Example
If your house is worth £200,000 then divide by 100 and you get 2,000. Now divide your mortgage loan of say £100,000 by 2,000 and you get 50. So your LTV is 50%.

So the lower your LTV the lower an interest rate your lender will offer, anything below 60% LTV usually gets the best mortgage rates. The maximum LTV is 90% but the interest rate will be much higher than it would be for a 60% LTV. 

Credit Report Health

Next check your credit rating is good. Any mistakes like date of birth, current address or even not being recorded on the Electoral Roll, can cause a mortgage application to fail or delay it for many weeks while it is sorted out. 

CheckMyFile is one of the best agencies to get your credit report as they are unique in checking all four of the main credit agencies, Experian, Equifax, Transunion and Crediva.

Time Scale

If you are remortgaging with the same lender it takes less than a week if it’s just a change of the interest rate. If you are releasing equity, known as a Further Advance, to repay debts, then this will take a little longer, around 2 to 3 weeks.

Note: If your property is Leasehold (mainly for flats) it will take longer, as the solicitor will need to liaise with the freeholder or management company that owns the land.

In total, the mortgage offer takes around 2 weeks with a new lender and then the conveyancing solicitor for a freehold property would take another 3 weeks on top.

Usually, within a month of starting the remortgaging process, you can expect to have the process completed.  

Get in touch

If you want to chat through your remortgaging options, then just pick up the phone and call Sussex Mortgages today, and let’s see if we can find you a better deal to suit your lifestyle.