• get a better rate on your current mortgage
• consolidate your debts and monthly outgoings
• release equity in your property
• move home

In happier financial times, remortgaging was a popular way to release equity in your property, say if you wanted to install a new kitchen or do expensive running repairs. Nowadays, however, when the financial climate is not quite so buoyant, any remortgaging should be based on need rather on the desire to accrue luxury fixtures and fittings. You should bear in mind, too, that if you leave your current mortgage earlier than planned there may well be financial penalties to pay, as well as any costs associated with your new mortgage. It will pay you in terms of time and worry to factor all these ‘unseen’ costs into your calculations.

How to Remortgage your Home

If you have decided to stay with your current mortgage lender the process should be relatively trouble free and clear-cut. Just before your mortgage term is due to expire you can expect to be contacted by your lender, who will discuss your options with you.

If you feel a bit intimidated by all this talk of interest rates, fixed rates and variable rates, however, take heart, you are not alone. If this applies to you we would urge you to contact a mortgage broker, who will be aware of products that aren’t necessarily available direct to borrowers. All UK mortgage brokers are answerable to the FSA (Financial Services Authority); this means you can be confident that you will be dealt with in accordance with the
FSA Code of Conduct. (This is a pdf file). To put it simply, the regulations of the FSA mean you can expect to be treated with fairness and honesty. You should bear in mind that most mortgage brokers charge for their services, another ‘unseen’ cost to factor into your calculations.

A spokesman for Ernst and Young, Dougald Middleton, said, “While the survey shows that costs of borrowing have eased over the last quarter, we think credit conditions have turned over the last three or four weeks.”

The outlook seems distinctly gloomy for consumers, and banks are blaming this forecast on the tightening of wholesale funding. Conversely, the default rate on mortgages and loans has fallen, so it’s good news for the banks at least.

You could be forgiven for thinking that, if you already have a bad credit rating, the credit crunch has more or less eliminated any chances you may have had for remortgaging. Don’t despair, however, mortgages and re-mortgages are still available for people who have had credit problems in the past as well as those who have no proof of income, such as the self-employed.

It’s true that, if you have a poor credit record, including CCJs and bankruptcy, most High Street lenders probably won’t look at you twice but there are still specialist lenders out there who will approach your situation more sympathetically.

It has to be said up-front that you won’t be offered the best interest rates around as interest rates reflect how risky the lender thinks you might be – if you’re credit history is not wonderful or if you are looking for a high value loan compared to the value of the property, you will pay higher interest. Of particular importance is your very recent credit history, so you should have had no CCJs or additional mortgage arrears in the past three months.

When it comes to how much you can expect to borrow: up to about 90% mortgages are available for a fairly clean record; if there have been problems in the not-recent past, you could probably get 80% to 85%; and even those with very poor credit history can obtain a mortgage up to a maximum of 65% of the property valuation.

None of this is set in stone though and every case is different, which is why we always advise people in this situation to contact a registered mortgage broker. By approaching a specialist broker you:

• Could get a loan that you wouldn’t have been able to find by yourself
  
• Would only have to make one application only. This is important as multiple direct refused applications would further damage your credit rating
  
• Might be able to stay in your family home instead of being repossessed or evicted.
  

The following links may help you find the remortgage solution for you:

Credit Choices

Email Mortgages – this company offers free mortgage advice

Finance & Mortgage UK – specialise in what they call adverse mortgages

Cozy Loans – specialise in finding mortgages for those with a bad credit history

Moneysupermaket.com – offer a selection of lenders willing to loan to those with a poor credit profile

If you have used one these companies – or, in fact, any other loan or mortgage brokers – successfully or otherwise, why not help others in a similar situation by writing about it on our bank forum?

What Does Remortgage Mean?

In the simplest possible terms, when you remortgage you will move your mortgage from one lender to another one with the aim of getting a better deal. Remortgaging is big business, with around one-third of all home loans in the current market being for remortgages.

Why Should I Remortgage?

Anything that can reduce your outgoings has to be a good thing and by remortgaging your property at a better rate you could save yourself a fortune. For most of us, the money we pay to our mortgage lenders is our biggest monthly outgoing so, surely, it makes sense to take all possible steps to reduce it. You probably shop around for other household purchases like electrical goods and three-piece suites so why should your mortgage be any different?

There are a couple of other reasons to think about remortgaging too: moving up the property ladder could be just the opportunity to change lenders; your financial status might have undergone dramatic changes – an inheritance or large salary increase, for example; you are a victim of an endowment policy mortgage that isn’t going to make enough to pay your mortgage in full; you are overburdened with debts and would like to consolidate them all in your mortgage loan. It can be emphasized strongly enough, however, that that last option should only be used as a final resort – there are other, less risky, methods of debt consolidation.

Why Shouldn’t I Remortgage?

If shopping around proves that you already have the mortgage deal made in heaven – stay put! The converse is also true – if you have signed a mortgage contract that makes moving legally complex or expensive – or both – you’re also probably best advised to stay put. And finally, in the current market, if you need to borrow more than 75% of the property valuation of your home you are unlikely to find a lender.

What Difference has the Credit Crunch Made to the Mortgage Market?

The current low interest rates mean that if you’re on a Standard Variable Rate (SVR) mortgage you are probably better staying with your current lender, however, it is always wise to shop around.

Having been bitten in the behind by their shockingly free and easy ways with money, UK mortgage lending is now much more selective. Before any lender accepts you as a customer they will want to reassure themselves as to your credit-worthiness, so unless you have a spotless payment history, your chances of remortgaging your property aren’t as good as they would have been a couple of years ago.

You should be aware too that your current lender may well charge you an exit fee and your new lender may charge you a management fee too. Then there are the legal bills… Suffice it to say, whilst remortgaging may be the best move you ever make, it is a move that requires careful consideration first.

Making the Right Mortgage Choice

The right mortgage for you might not be the right mortgage for your neighbor – choosing the correct mortgage is all very dependent upon individual circumstances. The most basic of choices to be made is between an interest only mortgage and a repayment mortgage; probably the best advice is to choose for a repayment mortgage but this isn’t always the case. However, you will need to be a very astute risk-taker to make an interest only mortgage a good choice.

To be honest, there are far too many mortgage options available to discuss in one short article but there are myriad internet sites designed to help you make your choice. We strongly advise that you consult a licensed mortgage broker – one that covers the whole of the market and is not tied to a select group of lenders. And before agreeing anything, do find out what their fee is!

Making the Move

If you decide to do the work yourself – that is, without going through a broker – these are the basic steps to remortgaging your property:

1. Obtain a redemption code from your lender
   
2. Get quotes from the new lender
   
3. Don’t forget to add both sets of fees to arrive at the total cost
   
4. Work out how much you stand to save – then re-evaluate whether it’s worthwhile moving lenders or not
   
5. Apply to the new lender
   
6. Your house will be surveyed and valued just as with your initial mortgage. That plus the legal work should take about 6 weeks, but plan on it taking 8 weeks just in case
   

If you do decide to go through a broker, usually the most advisable route, you can expect to pay a fee of around 1.25% of the value of your property.

The first two months of 2010 have seen fixed rates chopped and tracker deals whittled down in cost and the best bit is that this is not only for those low-risk borrowers who, let’s face it, have never really had too many problems getting a mortgage. If you are classified as ‘high-risk’ or have only a minimal deposit, it’s your time too.

In fact, since November of last year mortgage rates for borrowers with a 10% deposit have fallen from 7% to 5.3% – that’s a third. To put this into real terms, if you take out a 90% loan to value deal now it will be £160 per month cheaper than if you had taken it out in November.

Despite the more favourable market, when it comes to deposits it’s still a case of the bigger the better; even with the best deal on a 90% mortgage, you will still pay more than twice the interest rate of a 60% mortgage. A 60% loan to value deal will attract an interest rate of approximately 2.58% compared to that 5.3% mentioned above.

New Mortgage Deals

Yorkshire Building Society: new range of mortgages at up to 85% loan to value

HSBC: new range of mortgages including a super-low five-year fixed rate at just 4.64%. This deal is only available up to 60% loan to value and attracts a fee of £999, so you will need a lot of money up-front to qualify.

Norwich & Peterborough Building Society: a new range of three-year discounted variable rates available up to 75% loan to value. The fee for this one is £695 and rates start at 2.95%.

Northern Rock: two-year fixed rates now start at 3.59% and 2-year trackers from 2.65%. These mortgages are part of the NR’s new Everyday range, which are not as flexible as the existing, fully flexible, range.

The Post Office: range expanded to include 75% loan to value deals. Set up fee is £599.

Current Best Mortgage Buys

The following are based on the total cost over the first 2 years and assume a property price of £250,000 on a 25 year repayment mortgage.

10% deposit, getting a mortgage of £225,000 on a property costing £250,000

HSBC term tracker rate at 4.99% (Base+4.49) with no fee

Santander (Abbey) two-year tracker rate at 5.49% (Base+4.99) with a £995 fee

Santander (Abbey) five-year fixed rate at 6.69% with a £995 fee

15% deposit, getting a mortgage of £212,500 on a property costing £250,000

Leek United BS
two-year discounted rate at 2.95% with a £195 fee

HSBC term tracker rate at 4.99% (Base+4.49) with no fee

Leek United two-year fixed rate at 4.79% with a £195 fee

20% deposit, getting a mortgage of £200,000 on a property costing £250,000

Leek United BS two-year discounted rate at 2.95% with a £195 fee

Nottingham BS three-year tracker rate at 3.99% (Base+3.49) with a £795 fee

Leek United two-year fixed rate at 4.79% with a £195 fee

25% deposit, getting a mortgage of £187,500 on a property costing £250,000

ING Direct two-year tracker rate at 2.64% (Base+2.14) with a £795 fee

ING Direct term tracker rate at 2.89% (Base+2.39) with a £695 fee

First Direct 2-year fixed rate at 3.29% with a £998 fee

30% deposit, getting a mortgage of £175,000 on a property costing £250,000

Santander (Abbey) three-year tracker rate at 2.54% (Base+2.04) with a £995 fee

ING Direct term tracker rate at 2.89% (Base+2.39) with a £695 fee

First Direct two-year fixed rate at 3.29% with a £998 fee

40% deposit, getting a mortgage of £150,000 on a property costing £250,000

HSBC
two-year discounted rate at 2.39% with a £999 fee

First Direct term tracker rate at 2.89% (Base+2.39) with no fee

Yorkshire BS two-year fixed rate at 3.39% with a £495 fee

However, I’ve been having a read of the Citizens’ Advice Bureau advice for getting through the credit crunch.  And it’s good.

So, here it is, then.

A Borrower’s Survival Guide to the Credit Crunch

1.  Get Talking, don’t sit and worry about your finances – talk to somebody about it!  You should be talking to:

• your lender
• your partner
• an independent debt advisor

2.  Get Advice, contact:

• Citizens Advice
• Shelter
• National Debtline
• Consumer Credit Counselling Service

3.  Plan. If you are coming to the end of a fixed-rate mortgage in the near future start planning ahead for higher repayments and researching the best deals in the market now.

4.  Don’t Ignore the Situation because it won’t go away unless you take action!

5.  Get Your Deb Priorities Right. Your mortgage is one of your priority debts – don’t pay it and you could lose the roof over your head.

6.  Pay What You Can Afford Each Month; f you can’t afford your full mortgage repayments, you should talk to your lender and still pay what you can afford.

7.  Open Those Brown Envelopes, and, if you are a tenant, open all mail that is addressed ‘to the occupiers’; this is how the mortgage lender will contact you if the landlord has a payment problem.

8.  Don’t Panic if You are Facing Repossession Proceedings, because this doesn’t automatically mean you are going to lose your home.  It is vital that you attend the court hearings. The court process acts as a final check to make sure repossession is the last resort. Some courts have advice desks which can provide last minute assistance.

9.  Don’t ‘Hand in the Keys’ and Walk Away, tempting as that might be.  Don’t do this without advice. You could still be responsible for the debt on the property and may be pursued for it years later.

• Finding the right mortgage deal is very important, potentially saving you thousands over the long term. Cheaper monthly payments also mean that you could pay your mortgage off early (by using the money saved on overpayments, if a product allows you to do so).

Because there are so many products on the market, it is not always easy choosing the right one for you: mortgages with extremely low interest rates sometimes hide the fact that the rate is only introductory and will rocket when the introductory rate expires. Also, if you tried to get out of such a deal early, you will probably be hit with expensive early exit charges.

• It is important that any mortgage you take out is well matched to your personal circumstances – if you are overwhelmed by the sheer number of products on offer, then enlist the help of a free independent mortgage broker company such as London and Country; they can remove all the stress from yourself and search the whole of the market in order to save you as much money as possible.
• It is important not to be too hasty when remortgaging, as new, increasingly competitive products are constantly coming onto the market. Products are offered for 3-6 months, and it is possible to book these in advance. If you are thinking about doing this, seek the advice of an independent financial advisor or mortgage broker: they will be able to advise you whether it is wise to go ahead or wait to see what other products become available.

Peter McGahan, independent financial advisor at Worldwide Financial Planning, advises:

“If your fixed, tracker rate incentive is coming to an end, with certain lenders it may be best to do nothing at all; once your incentive period ends you will automatically move onto your lenders Standard Variable Rate (SVR).

At present, many lenders’ SVR is actually lower or close to what new remortgage rates are available on the open market.  You will not incur any fees to move to the SVR and you will also be free from any Early Repayment Charges or tie-ins, allowing you the ability to re-assess your situation over the coming months”.

• Another reason to avoid hasty remortgaging is cost: if you are accepted for a particular loan and then change your mind, some lenders will charge hefty penalties if you back out. Some retain the application fee or keep all or half of the arrangement fee; this could be as much as £1000, so it really does pay to be 100% sure about a product before you sign up. Some lenders (such as the Halifax) charge no upfront fees, but this is rare.

• Due to current economic conditions, mortgage applications have taken a nosedive, particularly in the area of remortgaging. This is down to several factors, including the fact that many people now have a high LTV (loan to value) ratio as a result of falling house prices. Some homeowners with a previously healthy LTV of 70% or below are now finding themselves with a mortgage totalling 90% or more of their property value, and most products on the market today require a LTV of 80% maximum. Thus, these homeowners will find it extremely difficult to remortgage.

For such people, there are various options:

1.     Wait for the market to pick up before remortgaging

2.     Consider using savings or taking out a loan to pay the deposit required on a remortgage (only if it is a deal not to be missed and will save you a considerable amount of money in the long term).

3.     Employ a financial adviser or mortgage broker to search the mortgage market for products offering a high LTV. However, it is believed that there are less than 10 such products available.

The key to remortgaging during this difficult time is not to rush – take the time to research the various products on the market and consider employing the services of a financial advisor or mortgage broker if you find the task too daunting. This way, you can be confident that any remortgage deal you choose will be the right one.

In its simplest term, remortgaging simply means switching your mortgage from one lender to another, and the main reasons for doing so are:

• To switch to a cheaper deal (ie get a better interest rate). Staying on a lender’s standard variable rate (SVR) usually means paying over the odds – although this is not the case at present, given the extremely low Bank of England base rate. Mortgagees revert to the SVR when their existing mortgage deal comes to an end, and, as above, this is OK at present. However, it really does pay to find a cheaper deal if you can: a monthly mortgage payment of £1000 at 7.5% is reduced by an incredible £170 per month on a new rate of 5.5%.

Remember to take into account redemption penalties (if applicable) and arrangement fees. Make sure that these costs are factored in when working out whether it is worth remortgaging or not.

• To release equity, in order to free up money for home improvements or to help with bills. In view of the current economic climate, think hard about remortgaging for this reason – would you be able to comfortably afford the repayments? If not, you could potentially lose your home. However, in the current economic climate it is easier and cheaper to extend your current home rather than move. If you want to add an extension or loft conversion, remortgaging is one way of raising the money. Lenders often offer special discounted interest rates for those who are looking to improve the energy efficiency of their home.

• Regarding debts, it may be benificial in certain circumstances to use your equity to clear bills; a mortgage rate is usually much lower (typically around 5-6%) than interest rates charged on credit cards (around 16%). Always seek specialist advice before doing this.

• To extend or reduce the term of the mortgage. Extending your mortgage term may reduce payments, but will take longet to pay off and thus more interest will be paid. Reducing the term means that the mortgage will be paid off sooner and money saved in interest.

• Moving home

• Some homeowners use the equity in their property to put down as a deposit on a buy-to-let mortgage. If you are thinking of doing this, make sure you thoroughly research the viability of what you are intending to do, and the implications should things go wrong.

• The criteria surrounding remortage deals has been tightened as a result of the credit crunch, and most lenders demand deposits of at least 15%, with the best deals being reserved for those with deposits of 40% or more. This may mean that those who put down little or no deposit and those whose homes have fallen into negative equity may have trouble remortgaging.If you cannot remortgage due to the reasons above, try not to worry too much: staying on your lender’s SVR is okay for the time being, given the competitive interest rates. There is signs that the housing market is improving, and thus you should be in a position to remortgage once property prices start to rise.

Tracy North from uSwitch.com comments:

“Remortgaging is a minefield of complicated information so consumers really need to do their home work. At the moment there are some competitive deals around but, when you dig around a little, you may actually find that the high fees associated with these deals completely negate the low interest rates offered. Adding these fees onto your new mortgage balance may seem like a quick fix but consumers must remember that paying back a £1,000 fee over 25 years is probably the most expensive loan they could possibly have.”

When you do remortgage, it is important to look for one that offers flexible features, such as overpayments, underpayments and payment holidays. As the current recession has shown, such features are a godsend when money is tight. Similarly, the overpayment feature allows you to pay more off your mortgage when your finances allow it.

For instance, if you have savings of £25,000 and a mortgage of £100,000, you only pay interest on the difference – £75,000. Over time, thousands of pounds can be saved and this is especially attractive in the current economic climate. The offset mortgage has been around for ten years but in recent hard times has surged in popularity, thanks to competitive mortgage interest rates and the poor amount of interest paid on savings.

There are two types of offset mortgage: the standard type, which links all your accounts (savings, mortgage, credit cards, loans etc) whilst keeping them separate, and the current account mortgage, which brings all such accounts into one account with a large overdraft facility.

Although interest is not paid on any savings or current account, less interest is payable on your mortgage and there will be no tax to pay on interest made from savings. Also, substantial savings can be made on any linked credit card accounts: average interest on a credit card stands at around 16%, but offset mortgage rates are typically much less than this; with the base rate so low, this type of mortgage product can have an interest rate as low as 3%.

When used to full effect, it is estimated that an offset mortgage can shave almost nine years off a standard 25 year mortgage and save several thousand pounds.

Like many other mortgage products, most offset mortgages are conveniently flexible; they allow underpayments, overpayments, and payment holidays (in certain circumstances). This provides peace of mind for borrowers with fluctuating incomes (such as the self-employed) and allows people to conduct their mortgage according to their financial circumstances.

Advantages and Disadvantages of the Offset Mortgage:

Advantages:

• Can save thousands over the long term
• May pay the mortgage/credit cards/loans off much quicker
• Flexibility
• Most effective for those with substantial savings (totalling 10-20% of their mortgage) and those who save regularly

Disadvantages:

• Rates are typically higher than those of other mortgage products (although they are competitive at the moment as a result of the unusually low base rate).
• Discipline is required: if you are forever dipping into your savings or you only have a small amount saved, the product may not be for you – the key is to offset a substantial amount of savings against your mortgage over the long term.

Louise Bond, personal finance product manager at uSwitch.com comments:

“Unlike overpaying, offsetting allows consumers to access their savings at any time. For people that are nervous about the current financial situation, this could offer the most lucrative and safest alternative to a low rate savings account. Unfortunately, only 5% of mortgage deals currently allow consumers to offset but this is something that would change if the demand for offsetting increased. As consumer knowledge of offsetting is so low, it’s a bit of a catch twenty two situation.

Despite popular belief, you do not have to have a high savings balance to benefit from offsetting. As long as you have a mortgage rate that is higher than your savings rate after tax, you will be quids in by offsetting for as little as one year”.

Thanks to the benefits for savers, offset mortgages are becoming more popular and more lenders are gradually offering such mortgages, with tracker, capped and discounted offset mortgages available (although the majority tend to be on a variable tracker basis, moving in line with the base rate).

If you are thinking of taking out an offset mortgage, always seek the advice of a mortgage broker or independent financial advisor. Those with little savings may be better looking for a good rate on a fixed mortgage, in order to protect themselves against any sudden interest rate rises.

The table below shows the most competitive offset mortgages on the market at present (March 2009), all with a LTV of 60%:

Provider	Initial Rate and Duration	Rate Thereafter	Overall cost for Comparison	Early Repayment Charge
Scottish Widows	3.19 % for 2 years	3.99% for 276 months	4.1% APR	2 years
Woolwich	3.59 % for 25 years	_	3.8% APR	30/04/2012
Clydesdale Bank	3.69% until 30/04/2011	4.59% for 275 months	4.7% APR	30/04/2011
Northern Rock	3.89% until 31/03/2011	4.79% for 60 months, 4.54% for 216 months	4.8% APR	31/03/2011
Norwich & Peterborough Building Society	4.85 % for 25 years	­       _	5.1% APR	2 years

Please let us know whether you have found any other great offset mortgages.

With the economic crisis deepening further still and expected to get worse throughout 2009, lending criteria will become stricter and more homeowners will find it tougher still to remortgage. With major lenders experiencing financial problems of their own and the rapid decline in house prices, obtaining a good mortgage deal is more difficult than ever – especially for those in negative equity or those with adverse credit histories.

To try and breathe life into the housing market and get it moving, the Bank of England has cut the base rate of interest four times since October: the latest in March saw the base rate fall to an all-time low of 0.5%, with further cuts predicted before the end of 2009. This has meant good news for those with tracker mortgages, some first-time buyers and some re-mortgagors, but many homeowners have not benefited, for various reasons.

Some lenders have not passed interest-rate cuts onto customers (some tracker mortgages impose a collar, which means the interest rate cannot fall below a certain point) and competitive mortgage products are often withheld from those with high LTV (loan to value) mortgages: this refers to the amount of mortgage versus the value of the home, and many people have found themselves with a high LTV as a result of the slump in the housing market.

Even though lenders are able to pass interest cuts onto customers, few are doing so: only a handful have reduced their standard variable rate accordingly. So, for people wishing to remortgage at this time, finding a good deal is harder than ever. Here to help is a brief guide to the different popular types of mortgage and the pros and cons of each:

Tracker Mortgage: a tracker mortgage is linked to the Bank of England interest rate and thus, not surprisingly, this type of mortgage is very popular at the moment. In respect of this, a tracker mortgage is a more attractive option at the moment than the discount mortgage, given that these types of mortgage follow the BOE base rate rather than a lender’s SVR. The table below shows the best tracker mortgage deals on the market at present:

Please note that the above calculations are based on a loan of £150,000 with a LTV of 60% and a mortgage term of 25 years, and the type of mortgage you may be offered is subject to your personal circumstances.

If you are interested in switching to a tracker mortgage, try and find one with no redemption penalties (although these are few and far between at present!): this way, if interest rates start to increase you can switch to a fixed rate mortgage.

Fixed rate mortgages have always been very popular as they allow people to budget long-term: whatever payments are set at, they remain at that amount for a determined period, usually 2 or 3 years. The following table shows the best fixed rates on the market at the moment, based on the criteria above, but remember any deal you may get is dependent on your personal financial circumstances:

The key when remortgaging is to be prepared: start looking for a new deal a few months before your current deal ends, in order to spot the best deals in advance. This is worth doing, as most deals are valid for 3-4 months; some are even available for 6 months.

Make sure you take into account all upfront fees involved in remortgaging (such as valuation and arrangement fees) and redemption penalties, so that you can be sure remortgaging is going to be profitable in the long term. Consider approaching your current lender to see what they can offer you; if they offer you a good deal, you will save hundreds in upfront fees and be spared the hassle of switching providers.

If, for some reason, you cannot remortgage and find yourself on a standard variable rate, don’t panic: at the moment, rates are very low and so the move should not affect you too much. Also, there is no tie-in period with the SVR, thus in a few months you may be in a position to secure a better remortgage deal.

Finally, navigating the remortgage market can be very daunting: if you are having problems finding the perfect remortgage to suit your personal circumstances, enlist the help of a mortgage broker.

As Robert Sinclair, Director of the Association of Mortgage Intermediaries (AMI), says;

“Even with a more restricted range of lenders and mortgage products, the issues and pitfalls facing people are well set out.  The need for help from a mortgage intermediary who can explain the various issues and then recommend the most appropriate product has never been greater. This is where a mortgage intermediary’s knowledge of the market has its greatest value”