Mortgage news
Getting the best deal when remortgaging
Re-mortgaging is where a home owner renegotiates the terms of an existing mortgage, says Mortgage Solutions
The process simply involves redeeming an existing deal and switching to a different lender that is offering a more competitive rate or better terms. So re-mortgaging should be to a borrower's advantage.
But the number of people doing this has slumped by 60% in the past year, according to figures from the Council of Mortgage Lenders (CML).
Over the past two years, property prices have stopped rising and started falling, mortgage finance has dried up, and higher loan to value mortgages have all but disappeared.
It is now much tougher for borrowers because lenders are asking for deposits of 25-30% to secure the best deals.
Improving your chances:
If you want to re-mortgage you will find that lenders are being extremely picky about which borrowers they will lend to.
Credit histories are now, more than ever, a crucial part of the lenders' decision-making processes, and poor credit scores are the biggest cause of rejected applications.
Even borrowers in a strong financial position, with large deposits or a lot of equity in their properties, are falling at the first hurdle.
If you have recently missed your credit card payments, paid bills late, or made repeated failed applications for credit cards or unsecured personal loans, then this will have left a footprint on your credit history, which will be picked up by lenders.
It is important to check your credit score and if it is poor then you need to start taking steps to improve it.
Firstly, make sure there are no errors on your credit history and if there are, correct them as soon as possible.
Ensure all your debts are registered to your current address and that you are on the electoral register for that address.
Also, cut up and cancel any credit or store cards that you are not using. Make sure you make at least the minimum payments on existing cards and try to avoid applying for too many new cards if you are likely to be rejected.
Changing criteria:
It is worth noting that experienced mortgage brokers may know when lenders change their credit-scoring models, and be able to take advantage of this.
Although poor credit histories account for a significant number of failed applications, they are not the only reason why borrowers are being turned down.
A recent change of job can be a problem, and some lenders will require a probationary period of at least six months to have been served before considering an applicant.
Also, some lenders are rejecting applicants based on a change in personal circumstances that is perceived as putting extra strain on their income.
For example, some lenders will look at the impact on affordability of a new addition to the family.
If a borrower is currently on an interest-only mortgage, many lenders when assessing affordability will apply their criteria using a capital and interest repayment basis.
Where this occurs, it may mean that the borrower will have to increase the term of the mortgage to ensure affordability.
Also, lenders are now much stricter on interest-only borrowers demonstrating they have a suitable repayment plan in place.
Reduced equity:
How much equity you have - in other words, the size of your deposit - is crucial. There are plenty of homeowners who have owned their properties for a number of years, and therefore despite the price drops in the past 12-18 months, are still likely to have built up a significant amount of equity in their homes.
They are actually in a great position to re-mortgage and take advantage of some very attractive fixed and tracker deals out there at the moment.
As for homeowners who bought recently, and who have seen any equity they had in their properties eroded by falling prices, it is important not to panic.
If a current mortgage deal is about to expire, the mortgage will probably revert to the lender's standard variable rate (SVR).
With interest rates so low, a borrower may actually find that their lender's SVR is cheaper than the rate they are currently on.
Be prepared:
To make sure you maximise your chances of securing a re-mortgage, it is more important than ever to have the correct documentation.
That means ensuring that you can provide six months worth of original bank statements and wage slips, and your latest P60 tax form.
The key is to be prepared and to expect your finances to be scrutinised.
If it is possible to secure a competitive fixed-rate deal then it may make sense to take future likely interest rate rises out of the equation and to fix now, before it is too late.
Remember though, that there are generally costs associated with re-mortgaging and these should be factored into the equation. You may have to pay an early repayment charge to your existing lender if you remortgage.
Although many homeowners, at the moment, are happy to revert to their lender's standard variable rate, the problem is that it leaves them at the mercy of the market and sudden interest rate rises.
If and when interest rates do rise, many homeowners may not have budgeted for their monthly mortgage payments to shoot up if they are still on an SVR.
MAB 3547
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