Remortgage

Remortgaging simply means switching your existing mortgage to a new deal and/or to a new lender.

A specialist mortgage adviser can make your life easier, arranging your remortgage and ensuring you get the best remortgage deal for your particular situation and requirements.

In days long past the term 'remortgaging' had negative connotations, suggesting that the prospective remortgagor was in financial difficulty - as in 'we've got to remortgage the house'. However, during the boom years of the property and mortgage markets, remortgaging grew to account for 50% of all mortgage business transacted. In a fiercely competitive market, savvy borrowers regularly shifted their mortgage from deal to deal and lender to lender in search of the best rates. As their properties inflated in value, many thousands also increased the size of their loans when remortgaging and spent the money.

Since the credit crisis struck in 2007, remortgaging has dropped off dramatically. There are a number of reasons for this. As Bank Base Rate (BBR) was quickly brought down from 5% to its current historic low of 0.5% in 2009, borrowers paying their lenders' Standard Variable Rates (SVR) or tracker rates that follow the BBR saw their monthly payments drop, in many cases significantly. With no movement in rates since March 2009, those borrowers have had little or no incentive to switch their deal.

At the same time, with falling property values in many parts of the country and mortgage lenders tightening their lending criteria, many borrowers have been unable to remortgage. Lenders started to require that borrowers have more and more equity in their property in order to lend to them just as house price decreases meant less and less equity for many homeowners.

However, after more than two years with no BBR rises, mortgage borrowers appreciate that if they do rise and do so quickly, this might cause monthly repayments to increase rapidly for those on variable deals. Combine this knowledge with the introduction of a raft of highly competitive fixed rates like those coming to the market in the second half of this year abd it's little wonder that remortgaging has started to pick up. According to the British Banker's Association, there was a 14% increase in remortgage activity in August 2011 compared with August 2010.

Who should consider remortgaging?

The short answer is that any existing mortgage borrower who is not currently locked into a mortgage deal should at least consider what their remortgaging options would be. And those who are locked into a mortgage deal should start planning their remortgage well in advance of their existing arrangement's expiry date.

With BBR at 0.5%, borrowers on their lenders' SVRs are currently paying anything from 3.5% to 5.79%. As soon as BBR increases, it is highly likely that all lenders will hike their SVRs by at least as much as the BBR rise - and some lenders may take the opportunity to increase theor SVR by even more.

Borrowers on tracker mortgages, where the rate you pay tracks the BBR at a set margin, will see their payments go up by exactly the percentage rise in BBR.

What is Bank Base Rate?

Bank Base Rate (BBR) is the basic interest rate set by the Bank of England's Monetary Policy Committee (MPC) when it meets each month. Mortgage lenders use the BBR as a guide for setting their own Standard Variable Rates (SVR) which they usually move up and down roughly in line with the BBR. However, they are not bound to BBR, and can change their SVRs whenever they like. A Base Rate tracker mortgage, on the other hand, follows the BBR at a set margin for the duration of the deal.

Why remortgage?

Get a fixed rate One reason for switching to a new deal right now is to secure a new competitive rate. A fixed rate can provide the peace of mind of knowing what your monthly mortgage repayments will be for the deal period, something some people are looking for in an uncertain market.

Raise capital - If you need to finance a big spend, such as giving your children a deposit for a home of their own, and you have plenty of equity in your property, a remortgage can be the cheapest way of raising the funds.

Manage your finances - If money is a little tight, as it is for many people in the current economic environment, you could remortgage to a longer mortgage term which might bring your monthly repayments down a bit, depending on the rate you opt for.

Move to an active lender - A number of lenders such as Bradford & Bingley and Northern Rock, for example, are 100% state-owned and no longer open for new business, so if you have a mortgage with them they will not offer you a new deal. It could make sense to remortgage away while rates are keen.

Move to the mainstream - If you took out a sub prime bad credit mortgage in the past because you had a damaged credit record, for example, it could be that your record has now been sufficiently repaired to allow you access to a regular mortgage, which is likely to be charged at a lower interest rate than that you are currently paying.

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Let an expert adviser do all the shopping around for you.

It is very important to shop around to get the deal that is right for you.

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