First Time Remortgage
Lee and Neezam explain everything you need to know about a first time remortgage.
Podcast approved by The Openwork Partnership on 18/10/2023.
What is a first time remortgage and how does it differ from a regular remortgage?
A remortgage application, whether you’ve done it once before, a hundred times or never, will feel very similar.
With a first time remortgage, the main difference is the person that is going through it has never done it before. It’s your first experience of the process, the paperwork and working with the solicitors involved.
In terms of how a lender views it there’s no difference. As long as you meet their criteria, they will be happy to lend to you whether it’s your first time or your tenth.
What are the common reasons why someone might consider a first time remortgage?
Effectively, you would have bought your first home with a mortgage, and it’s really important that you review your mortgage often – every two, three or five years, depending on the type of product that you applied for originally.
The most common reason for remortgaging is to make sure that your mortgage is still cost effective, and you’re not paying more than you need to. It could be that you want to review your mortgage rate or product. There are other reasons too, such as capital raising for home improvements or borrowing more money for various things. But the most common one is to find a new rate.
What are the potential drawbacks or risks associated with a first time remortgage?
Everyone’s afraid of getting it wrong when it comes to mortgage applications. One of the big risks is not allowing enough time. If you’re remortgaging because you’re coming to the end of a deal with your current lender, we suggest giving yourself at least eight to 12 weeks to get the new application submitted and approved.
If you don’t meet that deadline and you’re in a fixed rate deal, you’ll most likely go on to what’s called the standard variable rate with your current lender – and that is much higher.
Another risk is potentially applying with a lender that declines your application because you haven’t checked their criteria. Maybe you haven’t checked the affordability, or you’ve done it online yourself and then realised that a full application is more complicated than you thought.
When you haven’t got limitless time, it’s important to get it right. Approaching a suitable lender first time will massively help to make sure you’re not paying more than you need to with your current lender.
How does the process of applying for a first time remortgage work? How long does it take?
Typically a remortgage is a new mortgage application, so it’s similar to the application you did when you bought your first home. It will still be assessed in the same way. They still take into account your income and outgoings and credit score.
Remortgaging is effectively moving to a new lender. It’s not to be confused with what we call a product transfer, which is where you stay with your existing bank. Generally that’s quite a short and easy process.
If you remortgage to a new rate with another bank, that involves a new application, assessing income and some small legal work. Typically you would speak to your mortgage advisor and we would review your options. It would take anything from two or three weeks up to eight weeks, depending on the scenario.
We generally recommend people start reviewing their options six months before their mortgage product is due to expire – giving you plenty of time.
What factors should first time remortgage seekers consider when choosing a lender?
We’ve already discussed the importance of making sure that you meet lending criteria before applying. You can also get an agreement in principle before you proceed with a full application.
Affordability is important, as is how lenders assess your income and your credit report. The other main thing to consider is whether it’s the right thing for you to do. When you get to the end of your deal, sometimes lenders will offer very competitive deals to stay with them. So not reviewing what they’re offering you and just assuming remortgaging to another lender is going to be better – that could be a mistake, and you could end up paying more.
Another factor to consider is whether you need to raise any additional funds. You’re coming to the end of your first initial deal. Will you just switch and lock in a new deal, or will you take the opportunity to raise £15,000 or £20,000 for home improvements? Are you looking to pay off some debts? It’s an opportunity to look at increasing your mortgage if you choose to.
How can a first time remortgage affect credit scores and financial wellbeing?
If not done correctly it can have a serious impact on your credit report – particularly if you’re applying to more than one bank.
It can also add an enormous amount of stress if you’re trying to do it yourself. Perhaps when you purchased your house and had a mortgage advisor, they supported you with the purchase. This is the first time you’re remortgaging – so use an advisor again and they can ensure that you limit the impact on your credit file and take away that stress.
In terms of your credit score, there’s no impact to get pre-approval. So having an advisor will really limit the impact it has on your credit file.
Can a first time remortgage help homeowners save money in the long run?
A first time remortgage can definitely help homeowners save money. The best option for you can vary – whether it’s more cost effective to switch or to lock in a new deal with your current lender. That’s something an advisor will be able to help you understand better.
If you contact your existing lender, they can advise you on their own products, but a mortgage advisor has access to a range of lenders. We can look at what your current lender offers you versus what else is out there.
So you can save money if you’ve got someone identifying more competitive deals with alternative lenders and helping you switch. That will save you quite a bit of money in the long run, when you think that a mortgage nowadays can be 30, 35 or even 40 years long.
What fees or charges do borrowers need to be aware of when considering a first time remortgage?
There may be an arrangement fee or a product fee – so a lower interest rate doesn’t necessarily mean it’s a more competitive deal. You need to make sure you’re comparing like-for-like products.
One product might have a slightly higher rate but no fee – while another could have a marginally lower interest rate with a £1,000 fee. How much you’re borrowing, the mortgage term and other factors will dictate which one is a more cost-effective option.
Other charges include solicitor fees. When you remortgage you need to instruct a solicitor to carry out some basic legal work. They update the Land Registry with your new mortgage lender and you’ll need to sign a mortgage deed and a few other things. Some lenders will offer you free legal fees – effectively, they’ll pay for the legal side of things for you, or they’ll give you a cashback incentive.
If you’re using a mortgage advisor they may charge you a fee, so check what that will be and when it’s payable. One other thing would be the valuation fee – if you are moving from one lender to another, that new lender hasn’t come out and valued your property, so they may insist on doing that. There may be a charge for that as well.
So there are a few different fees to consider, and that’s why it’s not always automatically cheaper or more competitive to lock in with a new lender – you might end up paying more than you expect in fees.
What are the typical interest rates for first time remortgages? How do they compare to other mortgage options?
They are the same. There’s no difference between a first time remortgage or a standard remortgage. It doesn’t matter if you’re inexperienced and not dealt with the process before – the products are very much the same as if you were remortgaging for the fifth time.
Normal lending criteria applies to everyone in terms of income, credit history and everything else. A mortgage advisor can help you compare your options and check your eligibility.
Are there any special eligibility requirements or criteria for first time remortgage applicants?
Not really. One thing to be aware of is that if you’re remortgaging for the first time and you bought your home with a 5% deposit, say two years ago, the chances are you’re not going to have a huge amount of equity in your property.
If you were to sell your property and pay your mortgage off, the amount you would walk away with is your equity. Having put in a minimum deposit, unless your property value has skyrocketed in the last two years, you’re probably looking at equity of around 5% to 10%.
Some lenders do have a minimum amount of equity requirement to remortgage with them. That varies depending on the lender, but there is a risk of not hitting that with some lenders if you’re doing it for the first time.
Other than that, it is straightforward. The criteria are no different for a first time applicant than anyone else.
What happens if a borrower fails to meet the repayments on their first time remortgage?
It’s the same with all mortgages. If you’re in trouble, then you need to speak to your mortgage advisor or your mortgage lender. If you’re at a point where you are starting to miss payments, you’d need to speak to your lender and see what they can do.
They might be able to make changes to your current mortgage terms to give you more flexibility. It sounds quite daunting, but it’s on all your mortgage paperwork that if you don’t keep up with your mortgage payments, sadly, your home could be repossessed.
If you’re feeling that you’re getting into difficulty, talk to your mortgage advisor to see if they can do something – perhaps review your mortgage and make things better. If not, your lender is there to help..
Are there any government schemes or incentives available for first-time remortgage borrowers?
Unfortunately not at the moment. The government schemes are more focused on helping people to buy their first home. There’s no goal to help people remortgage. Lenders will offer their own product incentives, but there’s no national support for remortgaging.
What documentation and paperwork is typically required when applying for a first time remortgage?
Most people listening to this will have bought their first home, so have gone through a mortgage application before. Very similar rules apply for a remortgage. Lenders still need evidence of your income – that could be payslips and bank statements, or if you’re self-employed, it could be your accounts or tax returns.
They may ask for less, because ultimately you already have a mortgage and are already repaying it. They may potentially view your application with a bit more flexibility. But it’s a good idea to pull together three months’ payslips, three months bank statements and check your ID is up to date.
Can a first time remortgage be used to consolidate debts or fund home improvements?
Yes. If you’re remortgaging for the first time you can use that opportunity to see how much more you can raise. It depends how much equity you have in your home and your affordability.
Lenders will decide how much they are willing to lend to you based on your income, your outgoings and your credit score. In theory, if they are happy to lend to you you could raise money against your home and increase your mortgage borrowing. That could pay off some debts or fund home improvements.
Generally, lenders are quite comfortable to lend you additional money for different things. Again, they do have criteria. A lot of people think that if they have equity in their home they can just get it out. But that’s not necessarily the case – lenders will have a list of things that they’re happy for you to borrow for, so they need to know the purpose of the funds.
One lender might approve you for £50,000 for consolidating debts – other lenders may not lend you anything because they just don’t like you to do it. Or it may be that they limit the borrowing – they might let you consolidate but with a maximum of £25,000.
You need to be really transparent with what you’re looking to use the funds for. The lender will ask you anyway and then you can see whether you qualify or not.
Can a first time remortgage be used to release equity from a property?
If you’ve got equity in your home, you generally can’t borrow more than 90% of the house value with most lenders. So if you already have quite a high mortgage against the property value, you can’t just remortgage all the way up to 100%.
Some lenders will allow you to remortgage up to 90%, and one or two might allow 95%. Again, seek advice to make sure you’re getting the right advice and suitable lenders.
What happens at the end of a first time remortgage term?
If you are locking in a new deal on another two-year fixed rate, when you reach the end of that deal, you have the option to remortgage again or lock in another deal with your existing lender.
If you do nothing, you will usually go on to that standard variable rate. We try really hard to ensure our clients never go on to that rate unless there’s a good reason. It just means you’re paying more than you need to.
Is it possible to switch mortgage advisers during a first time remortgage process?
I would question why you would want to. I assume the only reason is if you are unhappy with your current one. If you’ve found a mortgage advisor you trust and you’re happy with, they’ve given you the advice and the application process has started, it can be quite disruptive to then change.
But if you’re really not happy with your advisor then you of course have the right to withdraw an application from a lender. You can then find another advisor and start the process again.
The lender might ask why you’ve done it, and they might ask you for additional documents – it could raise a few flags. But it is possible.
It’s better to make sure you are happy with the advisor from the start – do your due diligence, have some conversations with them and check out their reviews. What you can’t do is start an application with one advisor and then have another advisor take that existing application on. You would have to start again.
What are the implications of selling a property before the end of a first time remortgage term?
It depends on the product and the mortgage deal you’re on. The best thing to do is dig out your mortgage paperwork. Have a look at what type of deal you’re on – are you locked in? Is there an early repayment charge if you need to redeem the mortgage?
The second thing to check is whether your mortgage is portable. In some cases you can take your mortgage with you if you sell and move to a new property. If your mortgage is not portable or you’re not buying another property simultaneously, you will need to redeem that mortgage early.
You’ll sell your home, the solicitors will use the money from the sale to pay off your existing mortgage and then you’ll walk away with whatever’s left.
If you are in a fixed rate deal or even a lot of discounted or variable rate deals, there will be an early repayment charge to pay. But you can always contact the advisor that arranged the mortgage initially. They should be able to help and support you in terms of what your options are.
What other advice or tips do you have for first time remortgage seekers?
If you will be applying for a mortgage in the foreseeable future, give yourself plenty of time. Start around six months before you need your new mortgage to start. That’s the earliest point you can begin.
A lot of lenders will offer you a new mortgage for six months. So if you’re coming to the end of a fixed rate in six months from today, we could apply for your new deal today. Not every lender offers six months but more and more lenders now do.
Make sure you’re fully prepared. You could even speak with an advisor before that time and start getting an understanding of the documents you will need, what your monthly payments are going to look like and explore your options across the market.
Check you understand what fixed rate is versus a variable rate – it’s another opportunity to revisit that. Maybe you did a two year fixed rate last time, but it doesn’t automatically mean you want to do the same again – it depends on your future plans, what the market’s looking like and your preferences.
You can look at the protection side again, too. If you have life cover, critical illness cover and income protection in place, which most people should have alongside their mortgage, it’s a good time to review that as well.
Think carefully before securing other debts against your home.
You may have to pay an early repayment charge to your existing lender if you remortgage.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
Approved by The Openwork Partnership on 18/10/2023.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS