First Time Remortgage

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First Time Remortgage (Part 1)

Steven Hargreaves joins us to talk all about how a first-time remortgage works. Episode one of two, recorded in September 2024.

What are the common reasons for remortgaging?

The biggest reason for most people to remortgage the first time is that their current deal is coming to an end. If they took a preferential deal, whether that be a two-year, three-year or five-year fixed rate, that will come to an end. What you don’t want is to go on to the lender’s standard variable rate when that preferential rate ends.

It’s September 2024 at the time of recording, and interest rates a couple of years ago were much lower than they are now. I’m still seeing clients on 2% interest rates, coming onto the newer rates which are now in excess of 3%.

If one of these clients were to go on to the standard variable rate, it can be as high as 8.99%. It really is a massive increase. So you should look at your options as early as you possibly can. Look at what’s available to you and at what rates.

How does the process of applying for a first-time remortgage work? How long does a first-time remortgage usually take?

A new mortgage application when you’re buying a home can take a few weeks, but the remortgage process is much simpler.

Where possible, lenders assess the property with an automated or a desktop valuation, which avoids surveyors going to the house. We still ask for three bank statements and three pay slips, but a lot of lenders only require the latest pay slip. In some cases they again try to automate that information.

So a remortgage can be much quicker than a purchase. I’ve had a mortgage offer through this morning – we only applied yesterday afternoon. The lender did an automated valuation. I uploaded pay slips which were checked by the underwriter, and they provided a mortgage offer within less than 24 hours, which is super.

Are there any special eligibility requirements or criteria for first time remortgage applicants?

No, it’s the same as a purchase or second-time remortgage. Lenders look at the income, including overtime, commission or bonus, if any. They look at the value of the property, and that’s what they based the decision on. There isn’t any special eligibility. It’s the same as with any mortgage.

What factors should first time remortgage seekers consider when choosing a lender?

Start by looking at what your existing lender is offering you to stay with them. Then look at what other lenders have to entice you away. Often, for a remortgage, lenders offer free legal fees and free valuation. So the actual cost of the remortgage can be nil.

If that comes with a much better interest rate than your existing lender is offering, it’s well worth remortgaging.

How can a first-time remortgage affect credit scores and financial wellbeing?

Credit score is still very important. Once you’ve got your own house and a mortgage, plus gas bills, electric bills, etc, your credit score will be significantly better than it was when you were a First Time Buyer.

You’ve created a credit history in those two, three or five years that you’ve owned the property. So in a lot of cases, your credit will be considerably better.

Are there any specific fees or charges that borrowers need to be aware of when considering a first-time remortgage?

The big one is the product fee. Some lenders charge a fee, while others will offer a rate without a fee. It depends on the amount of mortgage you’ve got as to whether it’s worthwhile paying that cost.

A lot of clients call me chasing the cheapest mortgage rate for a first remortgage. But that’s not necessarily the best for that client. If you’ve only got an £80,000 mortgage or a £100,000 mortgage and there’s a product fee of £1,000, that’s a lot.

You might actually be better with a slightly higher interest rate, but with no product fee.
If you were getting a mortgage in excess of £180,000, normally a cheaper interest rate with a product fee is more beneficial.

This is exactly what a good mortgage advisor would be looking at for you. It isn’t just the cheapest rate. I was looking at a deal today which had a £1,999 product fee. It was a cheap interest rate, but you would need a big mortgage for that to be beneficial.

We always look at all the costs associated with remortgaging, as well as the savings that interest rate would give you.

Can a first-time remortgage help homeowners save money in the long run?

Absolutely. You need to avoid going on to that standard variable rate. In some cases, your mortgage payment could double or more.

By remortgaging, you’re keeping it within your affordability. Rates have increased a bit from two or three years ago, but it’s still a lot cheaper than going on to the standard variable rate.

What are the typical interest rates for first-time remortgages and how do they compare to other mortgage options?

They’re the same as other mortgage options – it’s all based on the Loan to Value. Just using an easy example, if the house is worth £100,000 and you owe £95,000, it’s a 95% loan to value. In that case the interest rates are quite expensive.

If it’s a £100,000 property and you owe less than £60,000, with a 60% Loan to Value, it’s much cheaper. The lower the Loan to Value, the cheaper the mortgage rate.

I did a mortgage for a client this morning on a rate of 3.69%. A couple of months ago, that would have been in excess of 4%. So interest rates in September 2024 have reduced considerably over the last couple of months.

While the remortgage is still active and hasn’t completed, I would be monitoring it. If the lender brings out a new cheaper rate, I would offer it to my client. Just this morning, 24th September, NatWest and Nationwide have reduced their rates.

I’ve contacted all my clients with a remortgage going through and offered them a cheaper rate. I’m amending them because everybody wants the cheaper rate. So it’s always worth arranging your first time remortgage sooner rather than later, giving yourself plenty of opportunity.

So if your deal will come to an end in six months, I would strongly suggest you start looking for a new deal now. Over the last couple of years, we’ve had an awful lot of volatility in the market with interest rates increasing and decreasing.

Once you’ve secured a rate, if interest rates come down, we can always amend the rates down, which is great. If interest rates go up, you’re locked in at a cheaper level.

What are the potential drawbacks or risks associated with a first time remortgage?

I don’t think there’s any drawbacks, necessarily. The main risk is not doing something in time. Because interest rates have been coming down recently, some clients have said they want to leave it for the time being.

One client’s deal finishes at the end of December. They are going to wait until the middle of December. That’s fine if interest rates continue falling, but if they suddenly shoot up for any reason, they wouldn’t be able to react. That’s the risk.

I would always say it’s best to prepare. Get all your ducks in order, get everything sorted out six months beforehand. What you’re actually doing is drawing a line under your mortgage and making today the worst case scenario. This is the most expensive your mortgage is going to be. If interest rates come down, we will amend it for you. If they go up, you don’t need to worry about it.

What are the main steps in preparing for a first time remortgage?

It’s all about preparation. Make sure you’ve got your pay slips and your bank statements ready. Recently I’ve had some first time remortgage clients who still had their bank statements and pay slips going to their previous home address.

Speak to your employer, make sure your address is correct, and the same with your bank. It doesn’t take long. Get prepared six months before and you should get the best outcome.

YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR PROPERTY. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

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First Time Remortgage (Part 2)

Steven Hargreaves continues the conversation on first-time remortgages. Episode two of two, recorded in September 2024.

What happens if a borrower fails to meet the repayments on their first-time remortgage?

We don’t tend to find a lot of clients do this, because they’ve built up equity in the property. It would be a last resort to start missing repayments, because you can potentially lose the house. It doesn’t happen very often.

It’s only under extenuating circumstances that this would happen, because ordinarily, the house is worth a lot more than your mortgage. You don’t want to jeopardise that amount of money. Most people would prefer to sell the house rather than lose it to the bank or building society.

Are there any government schemes or incentives available for first-time remortgage borrowers?

No, not that I’m aware of. Ordinarily, you’re on your own with this. You’ve built your equity up in the house. It’s hopefully worth considerably more than you paid for it a number of years ago. You owe less, because it’s a repayment mortgage.

As the amount that you owe has reduced, the Loan to Value will be considerably better than it was when you first bought the house, so you may get a better interest rate. The lower the Loan to Value, the cheaper the rate.

What documentation and paperwork is typically required when applying for a first-time remortgage?

Ordinarily, the lender will make the remortgage as seamless and as easy as possible. They often do automated or ‘index’ valuations, where they look at previous sales of your property, what’s outstanding and whether that matches the valuation you’ve put down. That way they won’t need a valuer to assess the property.

In some cases, they still do. I’ve just done a remortgage last week where the client had put quite a huge extension on the property, which meant it was worth an awful lot more money.

When the lender did an index valuation, it came back as £550,000, whereas he anticipated the property was worth in excess of £700,000 because of the work they’ve done. The lender then sent a valuer around, and it has now come back in excess of £700,000.

Lenders might also do an automated income verification, in some cases. If not, they would ask for one to three pay slips. We always ask for three from a compliance perspective.

Is a remortgage easier than when purchasing a home?

The whole process is significantly easier than when you bought the house in the first place. If you remortgage, you still need a solicitor, but it’s nothing like when buying the house. The majority of these solicitors are free – the lenders pay the legal fees for the remortgage and they’re geared up to do everything very quickly.

To give you an idea, I arranged a remortgage at the start of this month. It’s the 24th of September today, and this was early September. The client’s deal comes to an end on the 30th September, so it needs to complete on the 1st of October. We got the mortgage offer within a couple of days and we’ve been liaising with the solicitor on a daily basis. It’s all going to go through next week for a 1st of October start.

So it can be done very quickly. It’s always better to allow yourself a bit of wriggle room and get everything sorted beforehand. But in this particular case, the client’s been away and he’s missed the emails.

Can a first-time remortgage be used to consolidate debts or fund home improvements? Can a first-time remortgage be used to release equity from a property?

I don’t usually give short answers, as you know, but yes, and yes.

But I’ll put a caveat on that. It depends on the equity in the house. You would hope that if you bought the house a few years ago, the property value has increased. If you’ve been paying a repayment mortgage, your mortgage has come down.

So therefore, if you’re wanting to do home improvements, put an extension and put a new bathroom in, in most cases we can arrange that at the same time as the remortgage.

Equally, if you wanted to consolidate debts, that can be done. Or, you can release equity to buy another property – or anything else.

What happens at the end of a first-time remortgage term?

If you’re on a fixed rate at the moment, once that deal comes to an end, you would normally go into the standard variable rate with your lender.

That can be quite a big increase. In some cases, interest rates are going up from 2% or 3% to as much as 9%. 8.99% is the highest standard variable rate I’ve seen.

This is why you would want to get a remortgage in place sooner rather than later. In an ideal world, you want that mortgage in position early, to avoid that standard variable rate.

Is it possible to switch mortgage advisors during a first-time remortgage process?

I guess it is. You’d have to be pretty unhappy – they’d have to really upset you. It’s never happened to me, because we’re working with you to get the most suitable outcome.

If your deal comes to an end in six months time, we secure you on a rate now. If interest rates fall, like they have been for the last few months, we amend that rate to ensure you’re always on the cheapest option.

We’re working with clients on a day-to-day basis to make sure that they’re always on the lowest rate. So why you would want to change, I’m not sure. But if your mortgage advisor wasn’t changing the interest rate, or they weren’t keeping in touch with you, the answer’s yes.

Is it possible to switch mortgage lenders during the process?

Absolutely. You would compare the offer from your existing lender with what a new lender proposes.

If, for argument’s sake, partway down the line, one lender came back with a ridiculously cheap interest rate, much lower than anybody else, we can move you to a new lender at any stage. We’re not tied in until the point it completes.

What are the implications of selling a property before the end of a first time remortgage term?

If I were tied into a mortgage until the 31st December, and I sold the property now, I would have early repayment charges to pay to my lender.

You wouldn’t necessarily remortgage, because you’re selling the house. But if it was selling today, in September 2024, you would have early repayment charges.

What advice or tips do you have for first-time remortgage seekers to make the process smoother?

Get your ducks in order, and get it sorted sooner rather than later. Your first opportunity is ordinarily six months before your current deal comes to an end. The benefit is that if interest rates increase, you’re already on a preferential rate. You don’t need to worry about it.

If interest rates come down, and you’ve chosen a mortgage advisor you’re happy with, they will amend that interest rate during the course of the application. You will always be on the cheapest rate.

Preparation makes it an awful lot easier. If you’re instructing a remortgage six months before the deal’s coming to an end, we can get the solicitors’ forms completed. We can watch for rates coming down and amend them, month in month out. If they go up, you don’t need to worry – you’ve got everything in place and you know how much your mortgage is going to be.

Get things done sooner rather than later. Some still do it very late, which can be quite risky.

What else do we need to know about a first time remortgage?

Make sure you’re happy with your mortgage advisor. Make sure they are working on your behalf, that they are whole-of-market and you get on well with them.

They should be able to provide you with the support you need, so that when your deal comes to an end, there are no big surprises. Plus, they will have held your hand during the whole process.