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One of your highest monthly outgoings is likely to be your mortgage. Research suggests that renters in London pay over £1,840 on average each month, whilst mortgage repayments are over £2,168 per month. Finding ways to save on the latter – i.e. through remortgaging – can, therefore, be a great way to ease the strain on your budget.
Here at Cedar House, our mortgage team offers some thoughts on remortgaging in 2020 in light of the pandemic and other important developments, such as the lower base rate introduced by the Bank of England (BoE). We hope you find this content helpful, and invite you to contact our team here at Cedar House for more information or to access personalised financial advice:
020 8366 4400 or enquiries@cedarhfs.co.uk
What is remortgaging?
In short, remortgaging involves switching your current mortgage deal to a new one. This could be done with your existing lender or with another provider. There are two main reasons people might consider remortgaging. The first is to borrow more money against their flat or house. The second is to try and reduce the amount spent on mortgage payments each month.
How has COVID-19 affected remortgaging?
The biggest notable impact that the pandemic had on remortgaging was that it brought about a nationwide lockdown in March 2020. This brought the UK housing market to a near-standstill as property viewings became impossible. As social distancing restrictions were lifted, however, the UK government has sought to restart the housing market – introducing measures such as the Stamp Duty Holiday in July.
The Bank of England (BoE) also felt it necessary to lower the base rate to 0.10% – an historic low – in an attempt to boost economic activity. This potentially opens up saving opportunities for those seeking to remortgage, since lenders follow the base rate when deciding the interest rates on their own mortgage products. Since many fixed-rate deals are now lower, now could be a good time to consider moving to a cheaper mortgage deal.
One (arguably) adverse effect of the pandemic is that many lenders have restricted their mortgage products, cutting out many of the options which are typically more attractive to first-time buyers (e.g. those requiring a minimum 10% deposit). At present, many lenders are now requiring a minimum 20% deposit.
Is remortgaging taking longer?
Banks and building societies are understandably busier now than they have been for a long time, due to customers contacting them about mortgage breaks and other concerns. As such, it may take more time for you to arrange a remortgage deal. You may need to be patient, and you might benefit from starting the process with your adviser sooner rather than later if you are considering this option.
When should I remortgage?
There are certain situations where remortgaging can make a lot of sense. If your current deal is coming to an end and you are about to be moved to your lender’s standard variable rate (SVR) – which is often higher than a fixed rate deal – then this is a natural time to consider it. Another reason might be that your property has risen significantly in value since you took out your last mortgage. As a result, you might now be sitting in a higher loan-to-value band, opening up the opportunity to get a lower rate. A third reason might be that you want to make overpayments on your mortgage, but your current deal does not allow this.
How could remortgaging save money?
Suppose you own a property where you have £200,000 left to pay on your mortgage. Currently, you are on your lender’s SVR which is 3.99% – leading to a monthly repayment of about £1,050. By switching to a fixed-rate deal at around 1.8%, the monthly expense could be reduced to just over £800 – resulting in a £250 saving each month and £3,000 across the year.
There are other situations where you might be able to move from one fixed rate deal to a lower one, especially if your property’s value has risen and you now hold a higher loan-to-value ratio. Of course, certain mortgage products involve certain fees which eat into the money you would save by switching. However, in many cases the sums can still make it worthwhile to move onto a cheaper mortgage product. A financial adviser or broker will be able to help you ascertain the best deals on offer.
Can I release funds by remortgaging?
Many households are facing lower incomes due to lost work, hours or jobs caused by COVID-19 and successive lockdowns. So, understandably, some may be looking to their property as a way to release capital and access some much-needed cash. Yet we’d urge extreme caution if you are considering this option. This is a huge financial decision with far-reaching implications for your wealth and finances – both in the short and longer term. Seek professional financial advice before making any big decisions in this regard.
Conclusion & invitation
Interested in discussing your mortgage or wider financial plan with an experienced financial adviser? Get in touch today to discuss your financial plan with a member of our team via a free, no-commitment consultation:
020 8366 4400 or enquiries@cedarhfs.co.uk.