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Your Free Guide to Remortgaging
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Independence and Integrity
This guide is sponsored by London & Country mortgages, that’s the reason it is
free. So let me make something very plain.
This guide is written with absolute editorial independence. What’s in it is purely
dependent on my view of the best ways to save money and the sponsor’s view
on that is irrelevant. However, the reason I agreed to allow London & Country to
be the sponsor, which enables this printed guide to exist, is because after detailed
research into those brokers that offer coverage nationwide, London & Country
has come out as one of the top for each of the last five years.
It’s very important that no one thinks this is the other way round, i.e. that it
is being recommended because it sponsors the guide. Like everything with
MoneySavingExpert.com, the editorial (what’s written) is purely about what’s the
If London & Country no longer offers the deals it currently does, and either starts
charging fees or stops being whole of market, I’d ditch it immediately. You can
check if that’s happened via an up-to-date article on mortgage brokers on the site.
Just go to www.MoneySavingExpert.com/mortgageadvice.
Money Saving Expert
This document does not constitute financial advice under the Financial Services and Markets
Act 2000. If you require such advice, you should seek appropriate professional advice.
London & Country accepts no responsibility for the content of this guide. The opinions and
information presented in this document are those of MoneySavingExpert.com and are not
necessarily the same as those which would be presented by London & Country, by whom this
publication is sponsored.
All information correct at time of going to press, September 2009.
Intro by Martin Lewis, Money Saving Expert
It’s a no brainer.
If your mortgage is your single biggest expenditure, then
cutting its cost is likely to be your biggest single MoneySaver.
So, rather than me going off on one here, explaining how
amazingly different to other mortgage guides this is for a
whole host of reasons, why don’t we both just get on with it
and save you some cash?
Please note that the information in this guide is correct Written by
at time of going to press, in September 2009. However, the Martin Lewis,
mortgage market is volatile so, while the vast bulk remains Jennifer Bailey
unchanged, always double-check before acting. and Guy Anker
1. Why should I remortgage? 1
2. Why shouldn’t I remortgage? 6
3. What type of mortgage do I want? 9
4. Other things to consider 20
5. No such thing as a free lunch 22
6. How to do it 26
7. Watch out for the hard sell on… 32
8. End thought 35
1 Why should I remortgage?
Remortgaging means shifting your mortgage from one lender to another
to get yourself a better deal. And you don’t even have to move house to do
it. In recent years around a third of all home loans were actually remortgages
as millions of canny borrowers took advantage of the UK’s hugely competitive
There are many reasons why remortgaging made sense for them – and could
make sense for you – but the main one is simple. Saving money. Big money.
For most people, their mortgage is their biggest financial commitment. And
it follows that streamlining the largest debt can produce the largest saving. If
you’re the kind of person who shops around to get the cheapest television or
DVD player, then you’re missing a trick by not using the same skills to save
money on your mortgage.
However, by September 2009, the economic crisis meant interest rates
had reached record lows. Many standard variable rates (SVRs), the rate most
mortgages revert to after a discount period, were rock-bottom too.
For some, sticking on the SVR is the best option, a previously unthinkable
scenario. If you’re considering this, ensure remaining on that rate is an active
choice rather than a lazy one as, otherwise, you may find you’ve missed out on
So before you go anywhere, challenge your current lender to give you a
new offer. Remember, it makes money from your debt so it does want to keep
If you do need to move, remember, although remortgaging can save you
money, it does so at a price. In fact, as mortgage interest rates have dropped,
the fees lenders levy have increased significantly. You may have to pay an exit
fee to leave your current lender and, depending on your deal, an early repayment
charge as well. You may have to pay an arrangement fee to join your new lender
and face legal bills too. If you use a mortgage broker to help you find a new
deal, some of them may charge too (although as we’ll discuss later, you can find
brokers who won’t).
This doesn’t mean you shouldn’t remortgage. Normally the savings will still
be huge – but it does mean you should do your sums before taking the plunge.
Martin’s Mortgage Moment
It’s tougher than it used to be
The lack of available borrowing, due everyone, and would throw money
to the credit crunch, means lenders out there, now their fists are tightly
have become more selective in who clamped around every penny.
they lend to, to ensure those they deem
In the old days, good deals were
to be the best customers get priority.
shockingly available for those who
Those seen as better customers are
were borrowing up to 125% of their
those with large deposits and with
home’s value. Now, that’s changed
spotless credit histories.
and by September 2009 you needed a
In other words, whereas once 25% deposit to stand a chance of
lenders were salivating with glee at getting a decent mortgage.
the thought of lending to anyone and
It’s not just about saving money. It’s also about getting a mortgage which is
right for you and your situation. So here are some more reasons to think about
It’s time to pack your bags
Maybe you’re moving up the property ladder and need to borrow more
money. Some mortgages are portable – that is you can transfer them to a new
property. But if you also need to borrow more money at the same time to buy a
more expensive property, it could make sense to take out a new mortgage for
the whole lot.
Your mortgage doesn’t fit any more
You’ve had a pay rise or maybe you’ve inherited some money. You want to
make extra payments to your mortgage but your current deal won’t let you. Or
perhaps you need to be able to miss a payment. Changing jobs, going back into
education, going travelling – whatever the reason, there are mortgages which will
let you take payment holidays.
Maybe you’ve been tempted by new and whizzy mortgages which combine
your savings or current accounts with your mortgage. More about those later.
Whatever flexibility you want in a mortgage, chances are it’s out there. But
remember products don’t offer these twiddly bits for free. Expect to pay for
flexible features with a slightly higher interest rate. So don’t be tempted to go for
whistles and bells unless you will actually use them.
It doesn’t do what it said on the tin
If you are one of the millions of people in the UK who have been told to
expect a shortfall on their endowment then you need to act now. You will still be
responsible for paying off your mortgage on the due date, even if your investment
has performed disastrously. It’s your problem, not your lender’s.
If you have an endowment mortgage then your monthly payment does
two things. Some of the money goes to your lender to cover the interest on
your loan. The rest is paid to an insurance company which invests it on your
behalf. What you are not doing is paying off any of the capital you owe. So
if you borrow £100,000 on an ‘interest-only’ basis, you will still owe the bank
£100,000 25 years later. If you’re lucky the money you have invested will have
grown sufficiently for you to use it to pay off some or all of the debt.
But in recent years most insurance companies have cut the bonuses they
pay investors with endowment policies, which means the money invested is
unlikely to cover the mortgage debt, leaving policyholders with a shortfall.
If you are in this position, it may make sense to convert some or all of your
loan to a repayment mortgage to make sure that you’ll be able to clear the debt.
This will cost more every month because as well as covering the interest you
owe, you will also be paying off some of the capital. You then either cash in your
endowment and use the lump sum to pay off some of your mortgage or keep it
going as a separate investment.
Deciding what to do with your endowment can be complicated – especially if
you are relying on the life insurance provided by the policy – and you might need
to take some specialist financial advice before deciding what to do.
Many people with ISA or pension mortgages face the same uncertain future.
Bad investment returns could mean they also struggle to repay their loans. Some
estimates suggest there could be another million people who have interest-only
mortgages but don’t have even a badly-performing investment to rely on. Some
people plan to sell their house to pay the debt, assuming the property value will
have grown sufficiently in the meantime to leave them a tidy surplus. But that’s
not guaranteed – and in every case it does make sense to consider converting
at least a portion of your loan to a repayment basis when you can.
You’ve got other debts elsewhere which charge much higher
interest rates and you want to wrap all your debts into one
If you have a lot of outstanding debts it might make sense to add them to
your home loan. After all, the interest rate you pay on your mortgage is probably
half or even a third of what you pay on your other debts.
But this is not something to do lightly. Remember you are securing this
money on your home – so if at some point in the future you can’t make your
repayments, your house is at risk. And, of course, if you borrow more and use
the cash to pay off your credit card or bank loan, you will pay be paying interest
on that extra money for as long as you have the mortgage.
Martin’s Mortgage Moment
Dumping other borrowings on your mortgage
I always shiver slightly when people of the borrowing. Borrow on your
talk about adding non-housing debts mortgage and your overall interest you
to their mortgage, whether it’s for a pay will usually substantially increase.
new kitchen, a holiday or to consolidate There are times when this could be a
existing borrowing. My problem isn’t necessary evil, perhaps to get you out
that it is wrong per se, in fact often it’s of a hole, but it’s usually better to pay a
a good move, but the issue is many slightly higher rate with the flexibility to
people see it as a no-brainer solution. pay off the debt much more quickly.
Let me make something plain. The one exception is if you’re using
this strategy in conjunction with a
Borrowing at 10% over 5 years is
mortgage which allows overpayments
cheaper than 5% over 20 years.
(more later) so you are actually paying
The amount of interest you pay is a the debts off in much less time.
combination of the rate and the length
2 Why shouldn’t I remortgage?
Despite the potential savings available, there are some people who probably
shouldn’t remortgage. It’s all a question of money, timing and your personal
circumstances. Essentially you have to decide whether the savings available
at the point you’re considering switching deals will outweigh the cost. Think
carefully if you fall into one of the following categories:
The lucky ones
You may be already on such a fantastic deal that you’d be mad to move.
But don’t get too comfortable – chances are it won’t always be top of the
tree so eventually you’ll need to consider hopping onboard the remortgaging
And it’s worth doing some checks so you KNOW you’ve got the best deal
The unlucky ones
Alternatively you may be on such a terrible deal that has you locked in with
such horrendous penalties that it’d be utter foolishness to move before the end
of the term.
But if you are on a really rubbish deal, then it’s all the more important that you
do move as soon as you can. So do your homework, and be ready – and try not
to think about how much money you’re wasting every month in the meantime.
It’s possible your current lender might be persuaded to let you switch to another
of its deals by paying a reduced early repayment charge. You’re unlikely to get
to move to its top of the range deal but as long as it’s better than the one you’re
currently on, and doesn’t lock you in for much longer, you have nothing to lose.
The ones whose timing is bad
Mortgage rates and fees fluctuate constantly; in relation to the Bank of
England’s base rate, what’s going on in the international money markets and
lenders’ own business priorities. It is possible that the sums will simply not add
up for you when you first consider remortgaging. In which case it may make
sense to sit tight and reconsider in a couple of months.
Those who own less than 25% of their property
If you own less than a quarter of a property outright – or put another way,
need to borrow more than 75% of the value of your property – then you’ll often
find it difficult to get a good new mortgage deal. It’s still worth checking the
deals available for those with little equity in their property as, though they are few
and far between, some exist. Be warned, though, that they usually come with
punishing interest rates which may make switching pointless.
That said, by the time you read this, the situation may have improved for
those with less than a 25% deposit.
You may have had a 10% deposit a year ago and got a decent mortgage,
borrowing the remaining 90% of your home’s value. But now, as house prices
have dipped, so the amount you owe is a bigger proportion. Unfortunately,
you’re a victim of evaporating equity, even if you have been making repayments,
and that can hurt you. In some cases, you may be in negative equity, where your
debt is higher than the value of the property.
The ones whose circumstances have changed
It’s possible that if your financial position has altered since you took out your
current mortgage – if, for instance, one part of a couple has stopped working
or you become self-employed – new lenders may not be prepared to offer you
a loan because you no longer fit their criteria. Again, you may be better to stay
where you are.
Those with a bad credit history
If you have a bad credit history – like missing a few credit card, loan, mortgage
or utility bill payments – it’s unlikely you’ll be able to remortgage at the time of
writing. That’s because the credit crunch has made lenders much more selective
in who they lend to. They want customers with spotless repayment histories.
Those with a very small mortgage
Once your loan falls below a certain amount – say around £50,000 – it may not
be worth switching lender simply because you may not make a saving if the fees
are high. In fact, some lenders won’t even take on mortgages below £25,000.
The smaller your mortgage, the bigger the effect any fees you pay to
remortgage will have. And with many new deals offered on the basis you pay
a four-figure fee, make sure you do the maths to work out if you’re better off
switching or not. In some cases, it may be worth remaining on a higher interest
rate to avoid the fee.
Borrowers who are very close to the end of their mortgage term may also
find it prohibitively expensive to move.
3 What type of mortgage
do I want?
Choosing a mortgage is like ordering breakfast in an American diner. It’s a
series of choices which seem to go on forever but which should help you identify
what you want.
Think back to why you want to remortgage in the first place, and that should
help you work out what you need your new loan to do.
The first choice is between interest-only and repayment. Unless you have
a very compelling reason, repayment should be the way forward. It’s the only
option which guarantees that you are actually paying off some of your debt every
month. With an interest-only mortgage you just pay the interest on the debt, and
in most cases, set up an investment which you hope will build up enough cash
to pay off the actual cost of the house.
There are some mortgages designed for first time buyers which let you just
pay the interest for the first couple of years and then convert to a repayment. That
might work if you’re struggling to get on the property ladder but it’s important to
make sure you do shift to repayment when you can. The sooner you start paying
off your mortgage, the sooner you’ll finish.
Martin’s Mortgage Moment
Interest-only mortgages aren’t bad
“Eh … what … that’s not what The point is the investment you use
you’ve said above. That’s not the to repay your interest-only mortgage
prevailing wisdom in every newspaper, may soar, in which case it pays off
what you going on about Lewis?” your house plus profit on top, or it may
plummet in which case you need make
All that’s true but it’s over simplistic.
up the shortfall at the end of the term.
While interest-only mortgages
aren’t bad, they are risky. Risk is an It is possible for a detailed rational
important concept in finance, it’s gamble on an interest-only mortgage
about taking a chance. The historic to pay off. Yet that gamble is beyond
problem with interest-only mortgages the scope of this guide. The reason
has been that most people who took most people are, and should be,
them out did so without realising there cautioned against these mortgages, is
was a risk. planning, understanding and managing
that gamble is complicated, and rarely
That is bad.
something to risk your house on.
Repayment versus interest-only is merely the first decision you have to make.
What sort of repayment or interest-only deal do you want?
Standard Variable Rate (SVR)
This is the simplest and most straightforward mortgage product you can get.
The SVR is linked to – but is not the same as – the Bank of England interest rate,
known as “base rate”.
SVRs are generally a couple of percentage points or so higher than base
rate. As the Bank of England shifts its rate up and down so lenders tend to move
their SVRs. But beware, there’s nothing forcing lenders to do this, so even if the
Bank of England cuts rates by 0.25%, your lender might only reduce its rate by
say 0.15%. Funnily enough, when the Bank puts its rates up, lenders do tend to
pass on the whole increase immediately and sometimes more on top.
Simple, and when base rate is low, government pressure can see these fall sharply.
No guarantee you’ll get the full benefit if rates fall.
Alongside their SVRs, banks and building societies offer a whole range of
other mortgages. Most are special offers which last for a set period of time, after
which lenders shunt customers back to the SVR where they hope you’ll stay.
Many of the features below can be and are used in combination.
Unlike the SVR, a tracker usually follows the base rate absolutely. So if rates
go up by 1%, your mortgage payment goes up by 1%. But if it falls by the same
amount then your mortgage will drop by the full 1% as well. However, some
products also have what’s called a “collar” – a minimum level below which the
rate will not drop. This was first enforced towards the end of 2008. Some had
a 2.75% or 3% collar which meant once base rate fell below these levels their
trackers stopped falling in price.
Lenders can also offer “lifetime trackers” which guarantee to follow the base
rate for the length of your mortgage.
You get the full benefit of all Bank of England rate falls – subject to any “collar”.
You get the full benefit of all Bank of England rate increases.
With a discount mortgage you get a rate which is a set percentage below
the lender’s SVR (or another specified rate). So it’s the interrelation between the
two which determines whether it’s an attractive proposition, as the following
This has a huge 2% discount for two years, but the discount is from
an SVR of 6.5%. In other words the rate you actually pay is 4.5%.
Cansistont Building Society
This offers a 1% discount, again for two years, but this time from an
SVR of 5.5%. So the rate you pay here is also 4.5%.
So it’s important to make sure you know both the size of the discount and
the level of the SVR.
Some deals discount from a tracker rate rather than the SVR. For example, a
lender could have a tracker where the rate is set at base rate + 0.75% and then
offer a two year 0.50% discount on top. That would mean you would end up
paying base rate + 0.25% during that time.
Even if rates rise, you’ll be paying less than the SVR. If rates fall you get the
Discounts tend to last for a relatively short period – typically 2 or 3 years. And your
payments will always increase if the Bank of England puts up interest rates.
This is pretty simple really. The rate is fixed at the outset and doesn’t move
for the length of the deal. Fixed-rate mortgages have become very popular in the
last few years. Two thirds of all mortgages taken out in 2006 were fixed, the vast
majority lasting for 2 or 3 years.
Lenders will let you fix for 10, 15 or even 25 years, something the government
is trying to encourage. But longer term fixed-rate deals have never really taken
off, largely because, despite the fact that many of these deals will let you take the
mortgage with you if you move, people, rightly, are wary of locking-in for such
a lengthy period. Early repayment charges often apply for the first 5 or 10 years
of such deals.
When getting a new fixed rate, the interest it’s set at is not always closely
aligned to the Bank of England’s base rate. Instead lenders price their deals
according to the cost of money they go out and buy on the wholesale money
markets. This is why you often have to pay to ‘buy’ a fixed rate – it’s because the
lender has to secure a matching pot of money to fund the loan.
Although you are insulated from the effects of any rate rises during the period
of the loan, if rates have gone up, you may face a steep increase at the end of
the deal, so-called ‘rate shock’.
Certainty. Your payments will not go up if the base rate increases. Most long term
fixed rate deals are portable.
You will not benefit from any falls in the base rate. You may have to pay a fee to
book your rate. Long term fixed-rate deals tend to have extensive early repayment
charges. There is also the risk of rate shock at the end of your deal.
Martin’s Mortgage Moment
Choosing between fixed and discount
There is no right answer here. It cash over and above the mortgage may
depends on your circumstances and choose to head for a discount and take
your priorities. A fixed rate is like an the gamble that it will work out cheaper
insurance policy against interest rates in the long run.
going up. That protection costs money,
Don’t look back in anger
so other things being equal, unless there
are exceptional circumstances, a 3 year If you do decide to go for a fixed
fix is likely to have a higher initial rate rate on the basis of security and
than a 3 year discount. However the rate afterwards look back with hindsight and
of the discount deal may go up or down. realise a discount rate would’ve been
cheaper, this doesn’t mean it was the
Do you need certainty?
wrong decision. If you needed surety,
Shock, horror thought from the Money remember you got it.
Saving Expert, but choosing a rate isn’t
As I love my analogies, let me give
purely about which is the very cheapest.
Deciding whether to fix is a question of
weighing up how important that surety If I asked you to call head or tails on a
is for you. coin toss and said I’ll give you £10 if you
win but you only need pay me £1 if you
I tend to think of this as a “how close
lose, then you should do it.
to the edge are you?” question.
While the bet itself doesn’t increase
Someone who can only just afford
your chances of winning, the reward
their mortgage repayments should
for winning is much better than the
not be gambling with interest rates
cost of losing.
and, therefore, will benefit much more
from a fixed rate as it means they’ll So if when we actually tossed the coin,
never be pushed over the brink by a you lost, the bet was still worthwhile. It’s
rate increase. Those with lots of spare the same with picking a fixed rate.
There are a couple of other special offer deals to consider:
With a capped mortgage the rate you pay moves in line with base rate but
there is an upper ceiling or “cap” above which it will not go. Some deals also
have a lower limit or “collar” below which the rate will not fall, whatever happens
to rates. As you might expect, these mortgages prove popular when people
are frightened that rates might soar. They tend to be more expensive than fixes.
There are only a handful of capped deals on the market, reflecting the falling
popularity which has seen them account for only 1% or 2% of new mortgages
in recent years.
You benefit from interest rate falls and have some protection against rises.
Limited product choice. The “cap” is often set quite high and the starting rate
can be expensive.
With a cashback mortgage, your lender gives you, er, some cash back.
Hence the name. You might get a lump sum back of say 5% or even 10% of the
amount of money you borrow. Whilst this money is bound to come in handy, as
ever, what a lender gives with one hand it takes back with the other. Generally
cashback mortgages charge higher rates than standard loans and charge you
penalties if you want to repay or switch your loan within a set period, usually 5
years. Basically your lender takes its cash back.
You get a nice cash lump sum.
You pay for it in other ways. Watch out for higher interest rates and hefty early
NEW AND WHIZZY
All the mortgages we’ve looked at so far are variations on a pretty simple
theme. You borrow a set amount of money, you pay back a certain amount every
month, and your debt is the amount you borrowed minus the repayments you’ve
made. So far, so straightforward.
But the last few years have seen the growth of a completely different type of
mortgage. It lets you use your savings and/or the money to ‘offset’ your debts,
reducing the total amount of money you owe.
As with Bog Standard deals, these can be structured as variable, fixed or
Current Account Mortgage (CAM)
As the name suggests it combines your mortgage and current account to
give you one balance.
So if you have £2,000 in your current account and a mortgage of £90,000,
then you are effectively £88,000 overdrawn.
Your debt is therefore smallest just after your salary is paid in and creeps up
as you pay bills and so on throughout the month. You must make a standard
payment every month which is designed to clear your mortgage over whatever
term you choose. The extra money floating around in your account acts like an
overpayment which should mean you actually pay off the mortgage much more
quickly. Any extra cash savings can be added to reduce the balance further. Or
you can transfer other debts like credit cards or personal loans to the account to
take advantage of the lower interest rate.
If used correctly, someone who spends less than they earn each month is
effectively overpaying their mortgage every month and so should clear it more
quickly, potentially saving thousands of pounds. However this is not unique to
CAMs – see ‘Martin’s Mortgage Moment’ (p.19).
You have to be very organised with your money. Psychologically do you want to
be permanently overdrawn? Plus the interest rates charged on CAMs are higher
than those on normal deals. To work well you need to have a reasonable amount
of money coming into – and floating around – your current account.
This time, instead of having one big pool of money, an offset keeps your
mortgage, savings and current accounts in separate pots. But, as above, your
savings are used to reduce – or “offset” – your mortgage.
So, if you have a mortgage of £150,000 and savings of £15,000, then you
only pay interest on the £135,000 difference. As with the CAM you make your
standard payment every month but your savings act as an overpayment, wiping
out more of the capital every month, helping you clear the mortgage early.
It’s also a good deal in terms of tax. This is because the interest rate you
would get if you put the £15,000 in a savings account is usually lower than the
rate you pay on your mortgage. And you’d have to pay tax on any interest you
got. Far better to pay less interest on your loan than earn interest on your savings.
So these accounts can be particularly good value for higher rate taxpayers. They
are also popular with self-employed people who can use the cash they build up
over the year towards their tax bill to reduce their mortgage.
You effectively overpay your mortgage every month, letting you clear it more
quickly, potentially saving you thousands of pounds. Your savings and debts are
kept separate so it’s easier to keep track of your money. Tax efficient, especially
for higher rate taxpayers.
As with CAMs, the interest rate is higher than on more straightforward mortgages.
So you do need to have reasonably substantial savings – typically 40% of your
mortgage’s value – to make the sums add up. If you need to spend your savings
for any reason, then your mortgage will become more expensive.
Martin’s Mortgage Moment
Wooooah there. OK offset and current Don’t believe the marketing
account mortgages sound great. Yet
My greatest wrath is saved for some
there’s a lot of hype mixed in with these
current account mortgage providers.
They provide illustrations which show
The decision boils down to two how many tens of thousands “paying
questions. Will you use all the extra your salary into your mortgage” will
features? And is the higher interest save you. Yet this is a myth.
rate you’ll pay off-set (ur hmm) by
Check the numbers behind those
illustrations and you’ll see it always
Is it just the ability to overpay includes a fact similar to “you spend
you want? all bar £100 a month” – in other words
you’re overpaying by £100 a month.
The one facility most people use their
While of course this overpayment is
flexible feature for is overpaying. This
beneficial, it’s not unique to the current
is the ability to pay off your mortgage
more quickly in order to reduce the
total amount of interest you will pay. In fact, the pure benefit of actually
Yet these days most bog standard paying your salary into your mortgage
mortgages will also allow you to account each month (if you take out
overpay and if that’s all you’re looking the overpayment) is only equivalent to
for, just get a normal cheap mortgage a 0.1% discount in interest rate and
with an overpayment facility. these type of mortgages are a lot more
expensive than that in the first place.
Unless there’s a very special cheap rate
these should most often be avoided.
4 Other things to consider
Even once you’ve chosen the type of mortgage you want, there are some
other things to check.
Is the mortgage available for remortgages?
Seems obvious but not all deals are.
Will the lender lend me the money I want based on the value of the house?
Most lenders will only let you borrow a certain proportion of the property’s
value. This is the Loan to Value ratio or LTV. A typical LTV is 75%. You often only
get the best rates if you can get down to 60% or under.
This might not sound a big deal but it has had a massive impact on many.
House price falls have meant most people will have seen their LTV ratio rocket.
Say you bought a £200,000 home a year ago and took out a £150,000 mortgage:
that’s a 75% LTV. But assuming 20% annual house price falls, meaning your home
is now worth £160,000, you’d have a 93% LTV with a £150,000 mortgage.
Do I meet the lender’s borrowing criteria?
Check whether you meet other requirements e.g. minimum salary or
employment status. Beware if your circumstances have changed since you
took out your current mortgage – you may not be able to borrow as easily – or
as much – as before. Go through the full steps to boost your credit score at
Does the lender charge daily interest?
This makes a huge difference to the amount of money you pay back. With
daily interest, the amount you owe is recalculated every time you pay money off.
And when you owe less, you pay less interest. With annual interest you don’t get
the benefit of 12 months’ payments until the end of the period.
Even if you move to a better rate, if the lender charges interest annually you
could well be worse off. For example, if you had 10 years to go on your £115,000
mortgage, a 5.35% deal charging daily interest would actually be better value
than a rate of 5% where interest was calculated annually.
Are there any extended ‘early repayment charges’ (previously known as
If you go for a deal for a set period – say a 3 year fixed rate or a 2 year
discount – you need to check what happens at the end. While most people
accept they will be penalised for getting out of the deal during the initial period,
it also used to be common for lenders to continue to charge early repayment
charges after this – hence “extended”.
These are gradually dying out but check and avoid like the plague.
What happens if I need to move house within the term of the mortgage?
Many mortgages are now portable so moving house doesn’t have to involve a new
deal. However, if you need to extend your loan at the same time it may make sense to
remortgage. If this matters to you, be clear about what you can and cannot do.
Can I overpay/make underpayments?
If this was a key reason for changing your mortgage, make sure any new deal
will let you do what you want it to. Many mortgages restrict the amount of money
you can overpay to a maximum of £500 a month or 10% of the outstanding
mortgage per year. Penalties if you go over these limits can be steep.
In some cases, although the extra money you pay is knocked off your
outstanding debt for the purposes of calculating interest, the lender keeps the
money in a separate pot. You can draw on this in the future, either by taking back
a lump sum or using it to cover future monthly payments.
Or maybe you want to be able to take a payment holiday. Some mortgages
do allow this but, beware, they don’t let you play hooky from the goodness of
their hearts. You will pay for it. Typically borrowers arrange to miss one or two
payments, and their monthly payments are recalculated to spread the cost of the
payment you missed over the rest of the life of your loan. There could also be an
extra penalty or administration charge on top.
5 No such thing as a free lunch
Although remortgaging can save you a lot of money, there are costs you will
have to pay. And these have risen sharply over the last few years. Pressure to
keep headline interest rates down has meant that many lenders have increased
the fees they charge borrowers who want to move to a new deal.
It’s vital to make sure you’ll save more than you spend or there’s simply no
point remortgaging. Some lenders will pay some or all of your remortgaging
costs but you can expect to get a less competitive rate in return, so although it
costs less, you save less too.
Mortgage regulation is supposed to ensure better disclosure of what deals
cost to get in and out of, so in theory it should be relatively straightforward to
crunch the numbers.
Broadly fees fall into two categories: the cost of leaving your existing lender
and the cost of joining your new lender.
Fees to leave Auldstyle Building Society
If you remortgage before the end of a fixed rate or discount deal period,
then you will have to pay an early repayment charge (previously known as a
These tend to be on a sliding scale so the earlier you are in the deal, the
more you will pay. On a 3 year fixed rate, you could be charged 3% of the
loan amount if you immediately redeemed your mortgage, decreasing month by
month to 2% at the start of the second year and 1% at the start of the third year.
Occasionally you may be caught by extended early repayment charges after a
deal has ended.
Some lenders will waive penalties in the last month of your deal if you move
to another of their products. It’s always worth asking.
Borrowers with cashback mortgages should also budget for a substantial
hit. In some cases you could be asked to repay the whole lump sum you received
if you redeem your mortgage within 5 years.
You will also usually have to pay a mortgage exit administration fee.
These have been around for a while – sometimes called deeds release, sealing
or discharge fees – and are supposed to cover the administration costs when
you pay off your loan.
Many lenders had put these fees up in recent years – until what had tended
to be a fairly small £50ish charge had jumped to over £200. Worse still, many
customers were being told they had to pay it, even though their original mortgage
agreement stated the smaller amount.
In 2007 the Financial Services Authority announced a crackdown on this
practice. A few lenders dropped the fee altogether but most just decided to
reduce it back to the original level. If you paid one of these previously it’s easy to
reclaim the cash – see www.moneysavingexpert.com/mortgagefees.
Fees to join Wantya Custom Bank
Warning! Arrangement fees. Once a minor part of your mortgage deal,
these are now almost as significant a factor as the interest rate itself.
This charge for getting a new deal can vary enormously from lender to lender.
In recent years they’ve shot up; where once £200-£300 was typical, now £500 is
considered quite cheap and some lenders charge 0.5% to 1.5% of the mortgage
value, which can be thousands.
Whatever the fee, the amount can be added to your mortgage debt, which
seems attractive in the short term, but it’s worth remembering this means you’ll
be paying interest on it for as long as you have your mortgage.
The reason for this is simple: by keeping the interest rate low their deals stay
in the best-buy tables, yet they increase prices by upping the fee instead.
This has made comparing mortgage deals much more difficult. Never rely
on interest rates alone; you must incorporate the arrangement fee into your
overall costing. If you’re using a mortgage broker, it should be able to crunch the
numbers for you.
A few lenders will charge you a reservation or booking fee to secure a
fixed rate, typically £100 – £200. This is almost always non-refundable.
It is also common to be charged a telegraphic transfer fee of around £30
to move the money on completion of the deal.
You should also expect to pay a valuation fee for a survey of your property.
This is to check a) it exists and b) that it offers the lender sufficient security for
the loan. The cost varies according to property value and lender but it’s safe to
budget at least £300.
A small number of lenders will also charge you in the region of £30 if you
refuse to take out their buildings insurance. This is usually worth paying to
avoid being trapped with your lender’s preferred insurer – which often hikes
premiums after the first year.
Remortgaging also incurs legal fees even if you don’t actually move house.
Many lenders will pay some or all of these, although generally such offers don’t
apply to borrowers in Scotland where a different legal process applies. In any
case, you will have to use a solicitor approved by your lender. They’re unlikely
to pay for your own solicitor to do the conveyancing. If you have to pay for it
yourself, you’re looking at around £500 – £600.
If you are remortgaging because you are moving house, then remember you
will also have to pay stamp duty land tax to the government. Even if your
lender covers your legal fees, this won’t be included. By September 2009 there
was no stamp duty payable on residential properties worth less than £175,000
(though this was a temporary increase from the usual £125,000 threshold), but
1% was due on properties worth between £175,000 and £250,000, 3% for
those up to £500,000, and 4% for those worth more.
Don’t forget if you use a mortgage broker you may have to pay their fees.
More on that in a moment.
Is it worth it?
To establish whether it’s worth remortgaging, you need to work out whether
the new deal in total is cheaper than the old one.
• Add up the cost of staying put. Work out how much you’ll pay to stay
where you are. This could be on your current rate, or it may be the standard
variable rate if your current mortgage deal is ending. Just find out what the
monthly repayments will be and multiply those monthly costs by the number of
months your potential new deal will last to calculate the costs of staying put.
• Add up the total new deal cost. Now see what the monthly repayment
will be with the new lender for borrowing the full amount and calculate the cost
over the special offer period. If it’s a two year deal, multiply by 24 to get the total
two year cost. But make sure you also add the fees to leave your old lender and
to join your new lender. Then compare the final figure to the cost of staying put
to work out which is cheaper.
6 How to do it
If you are confident you know what you want then there’s nothing to stop you
remortgaging on your own, though as explained in a moment, most people are
better off using a broker. But remember, if the mortgage you choose turns out to
be wrong for your circumstances, you’ll have no one to blame but yourself!
The internet can help you get details of different products and compare offers.
For more information, see www.MoneySavingExpert.com/mortgageadvice.
Newspapers also regularly publish best buy tables. Beware, such tables do not
always include all the fees you may have to pay.
Step 1 Get a redemption quote from your lender.
Challenge them for a better deal: you may not need
Step 2 Select the mortgage deal or deals you fancy.
Get detailed quotes from the new lender(s).
Step 3 Add up all the fees to get a figure for the total cost.
Step 4 Work out your savings over a set period.
Deduct the costs and work out if it’s worth moving.
Step 5 If you want to go ahead, apply to the new lender.
Often this can be done over the telephone or internet.
Step 6 Valuation and legal work.
This should take between 4 and 8 weeks.
Step 7 Completion. Start saving money.
Martin’s Mortgage Moment
Surprisingly, advice is worth it
Just going to your existing mortgage even do the ‘sort my finances’ thing
bank or building society is a waste most people actually want.
of time. It will only look at its own
Yet my tone changes with mortgages;
products; whereas the best mortgage
the right brokers can quickly source
brokers view the entire market to find
a top product, offer an extra layer of
the cheapest deal. It’s fine to ask it for
protection if things go wrong and carry
its best offer, to find a benchmark, but
more clout with lenders, easing the
don’t ever just stop there.
acceptance on otherwise unobtainable
Mortgage brokers speed it up mortgages.
Some brokers negotiate exclusive
I’m not usually a huge fan of financial deals with lenders that are simply not
advice. It’s often costly, unwarranted available to individual customers. And, if
and, as it concentrates on pensions, you do it the right way, you can get the
protection and investing, doesn’t advice without paying for it.
The advice route
The mortgage market is so large and deals change so quickly that a specialist
can really make a difference, but beware. All mortgage brokers are not equal.
Since 2004, residential-mortgage brokers have been regulated by the
Financial Services Authority (FSA). The new regulations are welcome but not
There are two key questions to ask a broker.
“Are you whole of market?” This means “will you look at all the UK’s
mortgage lenders to pick the best for me?”. If not, forget it. Unfortunately the
FSA left brokers a loophole allowing some to claim ‘whole of market’ status while
offering only a panel of lenders, providing they review their panel to include the
‘best deals’ roughly every two months. This is simply not often enough in the
UK’s fast-moving mortgage market.
The more advanced question, “could you, right now, source a mortgage
for me from any available UK mortgage lender?” should help cut the wheat
from the chaff.
Martin’s Mortgage Moment
Always check non-broker deals too
A few lenders have always not ING Direct and First Direct are well
offered their products through worth trying too.
mortgage brokers. Yet when the credit
In addition, virtually any company
crunch hit, more followed suit. Under
may decide to launch a product only
the regulations, ‘whole of market’
available direct to customers, not via
is technically defined as the whole
of the ‘available’ market, therefore,
deals not available to brokers don’t Ultimately this is a question of how
have to be included. much time and resource you can put in
While going to a broker is still the to supplement your broker-suggested
best start point, it’s always worth best deal… it is worth doing a few
checking the deals available elsewhere checks though. To keep up-to-date on
too. Of the major players that don’t this, visit www.moneysavingexpert.
offer any deals through brokers, HSBC com/mortgageadvice.
is often especially competitive, and
“How will you make your money?” Brokers have two sources of income.
• Commission. Almost all lenders pay brokers a ‘procuration fee’ worth a
whopping 0.3% to 0.5% of the mortgage’s value. On a £150,000 mortgage
that’s £450 to £750.
• Fees. Brokers may also charge you a fee directly. No reputable broker will
charge more than 1.25%. Do not use anyone charging more. Obviously
the prime MoneySaving route is to go for a fee-free broker… but if you find
someone you like, willing to spend time with you – with a low fee… go for it.
Previously, fees could only be charged on mortgage completion. Now,
providing brokers inform you at the outset, they can charge at any point in
the process. However, even though it’s legal, you should avoid any broker
charging before completion as it can cause problems if things change later.
Step 1 Choose a broker. You should be told explicitly what advice will
cost and when and how you will be expected to pay.
Step 2 Discuss your circumstances with the broker. It is helpful if you
have a redemption quote from your existing lender.
Step 3 Check direct-only deals. See if you can beat your broker with
deals it can’t access. If you can, discuss it with your broker.
Step 4 Select a mortgage. The broker should make sure it meets
Step 5 You/your broker will make the application to the lender.
Step 6 Valuation and legal work. This should take between 4 and
Step 7 Completion. Start saving money.
The top brokers
There are lots of great local brokers and if you choose them carefully using
the questions above, you should get an excellent face-to-face service. On the
other hand the big brokers boast of greater market power.
Obviously, it’s impossible to focus on every broker in the country, so let’s
stick with the main UK-wide mortgage brokers: Savills, Charcol and London &
Country. All are completely ‘whole of market’ operators.
The only difference is in their charges…
The Fees-Free Broker. London & Country mortgages provides a telephone-
only service and, as this is cheaper to operate, it can afford not to charge a fee,
it just earns from the commission.
Fee-paying Brokers. Both Savills Private Finance and John Charcol
mortgages operate face-to-face services and charge a fee.
Another option for the financially savvy
MoneyBackMortgages.com has an interesting proposition. It doesn’t give
any advice but if you process the mortgage you choose through it, you’ll get
some of the commission it earns as cashback, usually £100-£200 per £100,000
Simply request the mortgage you want from its ready-made best buy list
and you’ll get cashback. It’ll also try and source cashback on other requested
mortgages too. This route’s only for the very money savvy, so be extremely careful,
better to get the right mortgage and no cashback than the wrong mortgage with
cashback. Yet if you know what you want, it’s better than going direct.
Martin’s Mortgage Moment
Independence and integrity
This guide is sponsored by London & It’s very important that this is
Country mortgages, that’s the reason understood and no one thinks it is the
it is free. You will also see from the other way round, i.e. that it’s being
text on the previous page that it’s my recommended because it sponsors
prime fee-free broker. So let me make the guide. Like everything with
something very plain. MoneySavingExpert.com, the editorial
(what’s written) is purely about what’s
This guide is written with absolute
the best deal.
editorial independence. What’s in it is
purely dependent on my view of the best If London & Country no longer
ways to save money and the sponsor’s offers the deals it currently does, and
view on that is irrelevant. However, either starts charging fees or stops
the reason I agreed to allow London & being whole of market, I’d ditch my
Country to be the sponsor, which enables recommendation immediately. You
this printed guide to exist, is because can check if that’s happened via
after detailed research into those brokers an up-to-date article on mortgage
that offer coverage nationwide, London & brokers on the site. Just go to
Country has come out as one of the top www.MoneySavingExpert.com/
for each of the last five years. mortgageadvice.
7 Watch out for the hard sell on...
As mortgage rates have become ever more competitive, so some lenders –
and brokers – try to make more money elsewhere in the mortgage process. So
be prepared for the hard sell on the following...
Higher Lending Charge
A Higher Lending Charge (used to be called a Mortgage Indemnity Guarantee
Premium or MIG) is an insurance policy which some lenders force borrowers to
take out if they are borrowing against a property at a Loan to Value ratio (LTV) of
more than 90%. It protects the lender if the borrower defaults on their mortgage
and the property has to be repossessed. But Higher Lending Charges are very
expensive and only cover the lender, so are best avoided. As already discussed,
people remortgaging tend to have a better LTV than first time buyers, so you
may not be affected, but watch out.
Mortgage Payment Protection Insurance (MPPI)
Sometimes called Accident Sickness and Unemployment Insurance (ASU),
MPPI is supposed to cover your mortgage payments if you have an accident,
lose your job or become ill. However, MPPI policies are often expensive and
generally have lots of complicated exclusions; for instance, self-employed
people are usually not covered and there may be a relatively low maximum pay
out. It’s also important to note you may have to wait several weeks before the
policy kicks in, and then it will usually only cover your mortgage repayments for
Given these restrictions, MPPI may not be suitable for you, especially if your
partner’s income or your savings could realistically cover your share of the bills
for at least a couple of months. Even if you do decide you want MPPI, you can
probably get a cheaper deal by shopping around. For a full article on finding the
cheapest see www.MoneySavingExpert.com/mppi.
Bundled buildings/contents insurance
Be very suspicious of deals which insist that you buy your buildings insurance
through your lender. While the amount quoted may seem reasonable in the first
year, you are then trapped into accepting whatever premium increases they foist
on you in subsequent years for as long as the mortgage lasts. Some lenders
charge around £30 if you decline to take their insurance.
If you go elsewhere for your home cover some seriously cheap deals are
possible. By using cashback incentives some people get PAID to take out
insurance. See www.MoneySavingExpert.com/homeinsurance.
Life cover from your mortgage seller
Would you buy a stereo from the man who cleans your windows? No, so
don’t assume just because someone sold you one financial product they will
automatically get you a good deal on extra bits like life cover or other insurance.
As with MPPI, shop around. In some cases you can save 50% on the life cover
offered by your lender or broker. If your personal or medical circumstances have
changed you may not be able to get cover at the same price, so occasionally it
can pay to stick with an existing policy. But remember to cancel your old policy if
you do take out a new one. For a full article on how to find the cheapest cover, see
8 End thought...
Just because you’ve remortgaged once doesn’t mean you should rest on
your laurels. Today’s best deal could have tumbled from the best buy tables in six
months’ time. If you want to keep saving you need to keep your eye on the ball.
In particular, if you’ve chosen a rate for a period of time – say 2 years – then
ideally you need to start thinking about checking your rate is still decent at least
three months before your time is up.
Timing is crucial. Don’t let yourself forget and risk squandering the money
you saved by remortgaging in the first place. Put a reminder in your diary or in
your computer calendar or you can use the free ‘tart alert’ reminder services via
I hope you save some money.
If you want further information there are further articles on
www.MoneySavingExpert.com and you can chat about mortgages in the
Mortgage section of the site’s Forum.
A word from the sponsor
This guide is sponsored by L&C, a leading mortgage broker that
provides expert comment and best buy tables for the national press.
Unlike many other brokers, L&C charge NO FEE for the advice they give
and consider the whole of the mortgage market when they give advice.
No Early Repayment Charges
If you have no early repayment charges on your existing mortgage or
have less than 4 months left to run on your existing deal,
contact L&C for FREE advice on
Early Repayment Charges
If you currently have early repayment charges on your mortgage
and they have more than 4 months left to run, register for our FREE
Mortgage Prompt Service – we will send you an email or a text
message 2 months before your current deal is due to expire
so you can make arrangements to switch to a new deal at the
To register, visit www.lcplc.co.uk and click onto the
Mortgage Prompt service.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP
REPAYMENTS ON YOUR MORTGAGE
Priority Enquiry Form
I have the MoneySavingExpert.com Guide to Remortgaging and now would like
FREE mortgage advice to see if I can save money!
2nd name on mortgage (if applicable):
Whom do you wish us to contact?: Applicant 1 Applicant 2 (pls tick)
Daytime Tel no: Evening Tel no:
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Value of property: £ Amount owed on mortgage: £
Interest rate: % Monthly payment amount: £
Do you have an early repayment charge? Yes No (pls tick)
If yes — how much is it? £ When does it end?: / /
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Are you: Purchasing Remortgaging (pls tick)
Amount you wish to borrow: £ For a term of: yrs
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