Getting ready to remortgage

Getting ready to remortgage
Sort your credit report, minimise costs & find top deals

Securing a new mortgage from a different lender, known as remortgaging, demands significant effort, particularly in today’s climate of high mortgage rates and rising living costs. If you’re in need of a new mortgage arrangement—especially considering that 700,000 fixed-rate mortgages are set to expire in the latter half of 2024—these strategies might help you save thousands of pounds over time.

Looking for a fresh mortgage deal? While remortgaging with a new lender is one approach, you also have the option to negotiate a new deal with your existing lender through a process called a product transfer.

1 – Start the mortgage-switching process six months before your current deal ends to avoid your lender’s SVR

As your mortgage approaches the end of its initial term, be cautious. Typically, you’ll be transitioned to the lender’s significantly higher standard variable rates, which are currently hovering between 7.5% and 8.5%.

Ideally, you should secure a new mortgage to take effect as soon as your existing one expires. However, in today’s unpredictable mortgage market, where rates fluctuate with economic changes, it’s uncertain whether the rate you secure now will be surpassed by better rates in the near future. Therefore, it’s important to stay informed and flexible.

Get an ‘insurance rate’ to hedge against future rate changes

Most lenders allow you to secure a new mortgage rate up to six months in advance of its start date. For instance, if your current mortgage is set to end in December, you could lock in the August rate as early as August, even though your current deal continues until the end of the year. This strategy benefits you if rates increase, as you will have a more favorable rate locked in. Conversely, if rates decrease, you may have the option to cancel the August agreement and obtain a lower rate closer to your mortgage’s start date.

You can achieve this either by negotiating with your current lender (a process known as a product transfer) or by refinancing with a new lender. For more information on how to compare these options, refer to our Product Transfers guide.

Locking in a product transfer

Lenders typically permit you to initiate a product transfer up to six months prior to the expiration of your current mortgage. This process is generally straightforward if you’re not altering the term or increasing the loan amount.

Usually, there are no upfront fees for a product transfer, so you might not incur any charges if you later choose not to proceed. However, it’s wise to verify whether there are any initial fees, as these are unlikely to be refundable if you decide against the transfer.

If you opt to cancel the deal, it must be done at least 14 days before the new rate begins; otherwise, cancellation may not be possible.

You can use our Mortgage Best Buys comparison tool to view product transfer options from your current lender. For additional details, you can also explore our app or visit our website.

Remortgaging to a new lender

Typically, you can arrange this up to six months ahead of time.

However, switching to a new lender often means you’ll have to pay valuation, arrangement, and legal fees upfront to secure your new agreement. Check with your broker or lender to find out if these fees are required initially, as you might not recover them if you later decide to back out of the deal (additional details on these fees are provided in the quick questions below).

If you choose to cancel the deal, you must do so at least 14 days before the rate is set to begin; otherwise, cancellation may not be possible.

Could I lose out financially if I ditch the deal later?

The primary risk associated with committing to a product transfer or remortgage early is the possibility of better deals becoming available later. In such a scenario, you might find that waiting would have been more advantageous.

The financial drawback arises if you choose to abandon the reserved deal in favor of a new one, as you would forfeit any upfront fees already paid (assuming there were any). These fees can be viewed as a form of ‘insurance’ against the possibility of rates increasing after locking in your deal.

On the flip side, if interest rates do rise after you’ve secured your product transfer or remortgage, you benefit because you’ve already locked in a favorable rate.

Should you opt to switch from your locked-in rate to a new offer, be aware that in addition to potentially losing any upfront fees from the previous deal, you might incur additional fees for the new agreement. Thus, it’s important to be prepared for this possibility.

Use a broker to help you figure out if this is right for you

No matter if interest rates are low or high, various elements determine what is most advantageous for you. To get an initial assessment of your optimal mortgage deal, input all your details into our Mortgage Best Buys comparison tool.

However, we recommend enlisting the help of a mortgage broker for further steps, unless you have substantial expertise in mortgages yourself. Check out our top mortgage brokers section to find a reliable one.

Our recommendation is based on:

• Finding these deals can be challenging because lenders often differ on the duration for which you can lock in a rate, even among their own options. Brokers are typically aware of which deals allow you to lock in a rate for several months.
• It’s advisable to seek out a mortgage with minimal or no upfront costs before the mortgage is finalized. Brokers are well-versed in which mortgages fit this criterion.
• There are various risks and potential outcomes to weigh. A broker can provide guidance on these factors.
• Brokers possess information that is frequently hard to come by, such as lenders’ credit and affordability requirements. Therefore, a skilled broker can help facilitate acceptance by aligning you with the most suitable deal.

What fees could I have to pay upfront?

Typically, the fees involved are for arrangement, legal, valuation, and broker services, with booking fees being less common. However, it’s often possible to avoid paying these fees upfront.

The amount and obligation to cover these fees can vary based on the specific agreement, and there are numerous potential scenarios to consider.

• Mortgage product / arrangement fee. Lender fees can vary significantly; some might charge around £1,500, while others may not charge anything at all. Typically, if there is a fee, you won’t need to pay it until the mortgage is finalized, so locking in a rate shouldn’t be a concern. When looking at different mortgage options, think of the rate and fee as a balancing act. Generally, a higher interest rate is associated with a lower fee and vice versa. If the overall deal remains advantageous, opting for a lower fee with a higher rate might be a wise choice, making this strategy less risky in the process.
• Legal and valuation fees. Many lenders throw these in free on remortgages, while they’re also uncommon with product transfers. If not, they can hit £1,000+, but it often depends on your home’s value.
• Broker fees. When working with a broker, it’s important to note that some may impose a fee. However, with brokers who charge such fees, you typically only need to pay when you finalize the mortgage—meaning when you actually proceed with the new loan. In this case, if you decide not to go through with the mortgage before finalizing it, you won’t lose the fee.
• Booking fee. Though increasingly uncommon, some lenders might impose a fee to lock in a fixed-rate, tracker, or discount mortgage deal. This fee, which may be referred to as an ‘application fee’ or ‘reservation fee,’ typically ranges from £100 to £250. It is generally required at the time of application and is often non-refundable. If you secure a deal in advance but later choose a different one, you could forfeit this fee.

I’ve locked in a deal early – could the lender back out before it actually starts?

When you secure a remortgage rate with a new lender ahead of time, this offer is typically binding, providing you with considerable protection. According to a mortgage broker, it would be “uncommon” for the lender to withdraw from this agreement.

However, it is still possible for a lender to back out of a remortgage deal (requiring you to restart the mortgage-switching process) before it officially begins. You should only be concerned about this scenario if you suspect the lender might develop significant concerns about your financial situation as the deal progresses.

Lenders often perform additional or final affordability checks on borrowers right before the mortgage deal is finalized (referred to as ‘completion’). If your financial situation has notably changed between the initial rate lock and the completion of the deal—such as losing your job or the lender discovering discrepancies in your information—the lender may refuse to proceed with the agreed rate.

• What if house prices fall? Can I still keep the rate I’ve secured? Yes, once you’re accepted, the lender is committed to that rate (as long as the valuation report hasn’t expired) unless you decide you don’t want it.
• What if I lose my job or my salary drops after the mortgage offer but before I take the cash? Can the lender pull the offer? You’re obliged to tell the lender if that happens before it releases any cash to you. However, it can also pull the mortgage offer.
• What about other changes of circumstances, such as getting divorced? As above, you’re obliged to inform the lender, and depending on circumstances it may choose to pull its offer.
• Does this affect my credit history? Whenever you submit a mortgage application, your credit report will undergo an application search. Consequently, if you withdraw one application and submit a new one with a different lender, it could slightly affect your credit history. For more details on how mortgage applications influence your credit history, check out the complete information.
• If you dump your reserved mortgage, try to do it at least two or three weeks before your current mortgage is up. Many lenders won’t allow you to switch your interest rate if you’re close to the mortgage completion date. Additionally, acting swiftly can help you avoid transitioning to potentially costly standard variable rates.

AVOID DOUBLE BOOKINGS: When you secure a new deal with your current lender but later choose to refinance with another lender, be sure to cancel the locked-in rate with the original lender. Failing to do so could result in both deals commencing at the same time, potentially leading to significant early repayment charges, possibly costing you thousands of pounds to terminate one of the agreements.

2 – Check your credit report BEFORE lenders do

To persuade lenders that you have the financial responsibility necessary for a remortgage, they will scrutinize your credit reports to assess your repayment history. The primary credit reference agencies—Experian, Equifax, and TransUnion—provide these reports.

Your credit report includes information on your history with credit cards, loans, overdrafts, mortgages, mobile phone contracts, some utility accounts, and increasingly, buy now, pay later schemes. This record encompasses all accounts you’ve held over the past six years.

Previously, obtaining a credit report involved a fee, but now you can access them for free. It’s advisable to review all three major credit reports because you can’t be certain which one a prospective mortgage lender will examine. Make sure each report is in good standing. For detailed instructions, refer to our guide on checking your credit report for free.

After reviewing your reports, consult our guide on improving your credit report to find the best strategies for  Improve your credit report before applying for any new credit.

What’s recorded on my credit report?

All lenders use at least one agency when assessing your file. This data comes from five main sources:

• Electoral roll information. This is publicly available and contains address and residence details.
• Court records. County court judgments (CCJs) and bankruptcies indicate if you have a history of debt problems.
• Search, address and linked data. This encompasses records from other lenders who have accessed your file during your credit applications, the addresses associated with you, or individuals with whom you have a financial connection.
• Fraud data. If you’ve committed a fraud (or someone has stolen your identity and committed fraud) this will be held on your file under the CIFAS section.
• Account data. Banks, building societies, utility providers, and various other entities maintain records of all your payment activities and transactions across credit and store cards, loans, mortgages, bank accounts, as well as energy and mobile phone contracts.Moreover, payday loan information is typically documented, and ‘doorstep lenders’ are required by law to disclose the information they have about you. Additionally, there is a growing trend of reporting buy now, pay later transactions to the credit agencies.

Credit reference agencies will usually know:

• How much you owe
• How long you’ve had the relationship for
• A record of the last 12 months’ payments
• The final outcome and date of any closed financial accounts
• Any defaults or county court judgments in the last six years
• Whether you’re bankrupt or in a formal debt relief plan

What’s not recorded on my credit report?

There are numerous misconceptions about the content of credit files. It’s important to stay informed and not be misled. While credit files contain a significant amount of financial data, there are many details they do not include.

Here are some things NOT featured on your credit report:

• Child Support Agency payments
• Council tax arrears
• Race, religion, colour, medical history or criminal record
• Information on relatives (unless you’ve a joint financial product with them)
• Parking or driving fines
• Salary
• Savings accounts
• Student loans (unless taken out pre-1998).
• Old defaults or missed payments (from six+ years ago)

3 – Can you borrow the amount you need?

Previously, lenders calculated your maximum remortgage amount by multiplying your primary income by up to five times. Today, the process is more complex as lenders must ensure you can manage the repayments, and proving this has become more challenging due to the cost-of-living crisis.

To get an idea of how much you might be able to borrow, check out our guide on “How much can I borrow?” Keep in mind that this should be seen as a general estimate since the actual amount you can borrow will decrease based on your ongoing expenses and debts.

Different lenders use various formulas to determine how much they will lend, but in summary:

• The lender will add up your basic salary and a proportion of other types of income. This will normally include any bonuses, commission, benefits and second jobs.
• It will then look at your debts and outgoings. To calculate your disposable income, consider expenses such as debt repayments, maintenance payments, school fees, utility bills, and grocery shopping. Your disposable income should not only account for the current mortgage payment but also be sufficient to handle an increase in the mortgage rate. This ensures you have a buffer for potential rate hikes. As a result, the lender might lower the amount they are prepared to lend you to ensure you can comfortably manage the mortgage payments.

4 – Pick your remortgage date carefully to avoid fees

Many mortgages come with an early repayment charge during the initial incentive period. If you decide to remortgage before this period ends, you’ll incur this fee, which can amount to thousands of pounds (up to 5% of the remaining mortgage balance).

First, verify whether your mortgage includes this charge. If it doesn’t, you can remortgage whenever you choose without incurring penalties.

If there is an early repayment charge and you wish to avoid it, consider remortgaging for the day immediately following the end of your current mortgage term to sidestep any fees.

If the end of your term is not imminent and you’re contemplating remortgaging for other reasons, it’s crucial to determine the cost of the early repayment charge. This will help you assess whether it makes financial sense to leave your current deal. For additional details on the costs associated with remortgaging, consult our guide on “How Much Will Remortgaging Cost?”

5 – Get the exact figure you still owe on your mortgage so you don’t end up with a shortfall

Instead of guessing, reach out to your lender directly and ask, “What amount do I need to pay off the mortgage by, say, December 1st?”

Providing a specific date ensures that the lender will consider any scheduled payments you intend to make between now and that date (be sure to mention any planned overpayments). This approach will give you a precise figure for how much you need to borrow when refinancing. Avoid relying on your own rough estimate, as it might lead to a shortfall or result in you taking a more expensive mortgage deal than necessary.

You should also ask:

• Does that include an early repayment charge? If so, how much and on what date could I repay the mortgage without a charge?
• Does that include any other fees, such as an admin fee? This is sometimes called an ‘exit fee’ or ‘deeds release fee’? If so, how much is it?

The lender is permitted to charge you these fees only if they were disclosed to you at the time you initially secured the mortgage. These charges should be clearly outlined in the offer document and the Key Facts Illustration. For further details on remortgaging fees, refer to our guide on “How much will remortgaging cost?”.

6 – Self-employed? You’ll have more hoops to jump through…

If you’re self-employed, have difficulty demonstrating consistent long-term income—such as if you’ve worked abroad or are on a temporary contract—securing a remortgage can be challenging.

You’ll require solid documentation of your income. Be ready to present current evidence that reflects the performance of your business. Additionally, you’ll need to provide:

• Business accounts. You need to show preferably three years of accounts – though two is normally enough – usually signed off by a chartered accountant. Or…
• Tax returns. If you can’t show business accounts then two or three years’ tax returns are the next best option.

Your evaluation will be based on net profits rather than revenue. If this process seems complicated, it may be beneficial to consult a mortgage broker, as they are familiar with the specific documentation different lenders require.

This approach may be suitable for individuals with established businesses, but if you’ve recently transitioned to self-employment, especially if the change is recent, you might find it challenging to secure a remortgage.

For further details on obtaining a mortgage or remortgaging when self-employed, refer to our Self-employed Mortgages Guide.

7 – Estimate your property’s value

Before you begin exploring remortgage rates, it’s essential to have a clear understanding of your property’s value. This estimate must be realistic, as your mortgage lender will arrange for an independent valuation to verify the amount when you apply.

Avoid guessing a value without any basis. Instead, conduct thorough research—our Free house price valuations guide can be a valuable resource to assist you in this process.

8 – Now calculate how much of your home you own (and your loan-to-value)

After determining your property’s current market value, you can assess how much of that value you still owe on your mortgage versus how much equity you’ve accumulated. The relationship between these two figures is known as the loan-to-value (LTV) ratio, which plays a crucial role in determining the mortgage rate you might qualify for.

To calculate this, simply divide the outstanding balance on your mortgage by your property’s current value. Multiply the result by 100 to get your LTV as a percentage. For example, if you owe £225,000 on a property valued at £300,000, your LTV would be 75%.

Keep in mind that your current LTV ratio might differ significantly from when you initially took out your mortgage. If your property’s value has increased, your LTV may have decreased, potentially placing you in a lower LTV bracket. Conversely, if your property’s value has dropped, you could find yourself in a higher LTV bracket.

LTV is a crucial metric. The more equity you have (the portion of the property you own outright), the lower your LTV. A lower LTV usually means you can secure a more favorable interest rate when remortgaging.

Additionally, if you need access to cash, such as for a home renovation, you can remortgage to release equity, which means borrowing more than your current mortgage balance. However, this approach carries risks, as it could result in higher monthly payments or extend the duration of your debt.

9 – Try to drop an LTV band – it’ll make your mortgage cheaper

If your remaining mortgage balance exceeds 60% of your home’s value, lowering your LTV (Loan-to-Value) ratio can significantly reduce your remortgage costs. Key LTV thresholds where interest rates decrease notably are 90%, 80%, 75%, and 60%.

To move into a lower LTV bracket, you have two options: You can:

• Borrow less. Putting some of your own money in at the point of remortgaging is well worth doing if you’re really close to the next band.
• Try to get a higher valuation figure. How much more would your property’s value need to increase to move you into a different tax band? Even a rise of just £1,000 in value could be enough to make that change. How can you achieve a higher valuation? While there’s no exact formula, and it may or may not work in your favor, it’s still worth a shot. Remember, if you don’t ask, you won’t receive, so investing some effort could be beneficial.
• Set the valuer’s expectation high. Always put the top valuation you think the property could achieve on your application.
• Take a good look at your home.Is your space neat and well-maintained? It might be helpful to have a detail-oriented friend take a look—sometimes, it’s surprising what you might overlook when you’re in the same environment every day.
• Be at the valuation (if it’s actually in-person).It’s possible that this approach won’t be feasible, as some valuers may simply assess the property’s exterior and not schedule an appointment. Additionally, many valuers depend on online databases and the internet for their evaluations instead of visiting the property in person.
• Give the valuer comparisons.Inform the valuer about comparable properties to yours that have fetched high prices. Valuers use these ‘comparables’ as a key basis for their assessment. Sold properties are more influential in this process than those that are merely listed or pending.

Here’s a crucial piece of advice: while it’s good to remain optimistic, it’s also wise to prepare for less favorable outcomes. Be ready for the possibility that the appraiser might not agree with your estimated value.

If this occurs and shifts you into a different LTV category, the lender you’ve initially approached might not provide the most competitive rate for your new LTV. In such cases, you could potentially benefit from seeking a different lender. However, before making a switch, consider the potential costs of any delays or upfront fees you’ve already incurred.

10 – Sort out your finances & get remortgage ready

Having an impeccable credit history is impressive, but if your financial situation is chaotic, your mortgage lender will likely want an explanation.

In the weeks and months leading up to your remortgage application, there are certain actions you should and shouldn’t take:

• Don’t apply for credit just before a mortgage.
• Avoid erratic or heavy spending in the weeks before you apply.
• Stay out of your overdraft.

Lenders prefer to see that you handle your finances responsibly and, crucially, that you have sufficient funds to make monthly repayments. Purchasing expensive items and frequently using your overdraft can undermine your image as a dependable borrower.

11 – Sort your paperwork to speed up the process

Recall the mountain of paperwork and documentation you gathered when applying for your previous mortgage? Well, you’ll need to assemble everything once more for your remortgage.

It’s wise to prepare these documents a few weeks ahead of time, as your new lender might request any or all of the following:

• Your last three months’ bank statements
• Your last three months’ pay slips
• Your last three years’ accounts/tax returns (if self-employed)
• Proof of bonuses/commission
• Your latest P60 tax form (showing income and tax paid from each tax year)
• ID documents (usually a passport)
• Proof of address (for example, utility bills or credit card bills)

Submitting all the required documents to the lender in a single submission can expedite the process. Additionally, it minimizes the likelihood of your application being evaluated by multiple reviewers.

12 – Rejected? Throwing yourself at the next lender’s feet will only make it worse

If your remortgage application gets turned down – FREEZE! Resist the urge to quickly reapply with another lender. Multiple applications can negatively impact your credit score, so it’s best to avoid this. Instead, start by thoroughly reviewing your credit report. Have you overlooked anything?

It’s crucial to steer clear of the rejection cycle. Here’s a worst-case scenario to illustrate:

• You apply for a remortgage, but…
• You get rejected (sometimes falsely, due to an error), so…
• You apply elsewhere, and…
• You get rejected again.

This continues, until finally you check your files and get the error corrected. So…

• You apply again, but…
• You’re rejected because of recent ‘searches’.

If you face a rejection, promptly revisit the beginning of this guide and adhere to the outlined steps. Delaying could worsen your situation, as additional applications lead to more credit inquiries, which can further impact your score.

If everything seems in order with your credit report and no details have been overlooked, the rejection might be due to specific criteria set by the lender. It’s advisable to inquire directly with the lender to understand their decision.

This inquiry should clarify the primary reason behind your rejection and indicate if it was due to the credit check. For further details, consult our Credit Scores guide.

Looking for more mortgage help?

• Remortgage guide. How to get the best remortgage deal.
• Cheap mortgage finding. How to find a mortgage broker.
• Mortgage Best Buys. Find today’s top rates.
• Should you remortgage? What to ask yourself before remortgaging.