Getting a remortgage can be a fairly straightforward process. But there can also be factors that could hinder your application. However in many cases, these can be avoided. We take a look at reasons that may stop you from getting a remortgage and what you can do to help your application.
You’re locked in
If you’re currently in the middle of a fixed deal, then you may not be thinking about remortgaging at the moment. However, you may keep seeing deals with low rates that are extremely tempting.
Unfortunately most providers will charge a penalty fee, known as an early redemption charge, if you decide to leave your mortgage deal early. The simplest way to avoid paying this fee is to wait until your deal has expired. You’ll move onto the Standard Variable Rate which means you are no longer tied in.
Early redemption charges can be significant if you are in the early stages of your fixed term, however they tend to reduce over time. If you are within 12-24 months of the end of the deal, then paying this exit fee could actually still be worth it. This will depend of course on the amount you are likely to save by switching mortgages.
Switching to a much lower rate could save you thousands of pounds over the life of your mortgage. If the savings outweigh the redemption charges, then it might be a good idea to pay the fee and switch. If the fee negates any savings, then it’s probably wise to stay put for the time being.
You’ve got a high loan to value
Whilst we would all like our properties to go up in value, there is also the chance that the value could go down. If the value has decreased then your mortgage lender will assess you on a higher loan to value (LTV).
The LTV is the amount you borrow. Or in the case of a remortgage, the outstanding amount, compared to the actual value of the property.
Let’s say initially you borrowed £160,000 on a £200,000 home. The LTV in this case would be 80%. If your home has dropped in value to £175,000 but you now have £150,000 outstanding on your mortgage, the LTV would now be more than 85%.
With a higher LTV, this may reduce your chances of a successful mortgage. The best rates are usually reserved for lower LTVs. You may be face higher interest rates if you remortgage at this stage.
Negative equity can cause even more problems in terms. This is where the outstanding amount on your loan is more than the value of the property.
One option to try and avoid a higher LTV, would be to make overpayments on your mortgage to try and build up more equity in your home. Overpayments can help to pay the capital off your mortgage more quickly. Be careful, as most providers will have a limit on how much you can overpay each year.
Your circumstances have changed
Life doesn’t always stay still, so it’s very likely that your circumstances could have changed since you first took out your mortgage. Whilst some changes may improve your financial situation, others may make it more difficult to remortgage.
Perhaps you’re working fewer hours. You may have made the move to self-employment. You may now have a family and have childcare bills or other costs that are affecting your household income and expenditure.
If you are due to remortgage soon and are looking to start a new job or start your own business then it may be worth holding off until your application has been completed. Of course, there are plenty of life changes that you can’t avoid or put off. In these circumstances, try to be sensible. Perhaps look at other areas where financial improvements could be made, such as cutting spending. This could help to retain your affordability for a mortgage.
You’ve faced credit problems
Getting a remortgage may become difficult if you have poor credit rating. Even if you can remortgage, your choice of deals is likely to be restricted. You may face higher interest charges too.
Lots of things can affect your credit score. Missed or late payments, whether on your mortgage or other debts such as credit cards can have a significant impact. A high number of credit applications can also have an effect so it is best to avoid this if you are planning to remortgage any time soon.
If you aren’t aware of what your credit score currently is, then it is wise to check this before applying to remortgage.
If required, you can improve your credit rating by paying off debts, using a credit builder card and rectifying any errors on your report.
You’re already on a low rate
If you’re already on a low interest rate, then you may not think there is any reason to remortgage. However, there could still be good deals out there that could beat your current one.
Even if you’re on the best deal from your current lender, it may be that you could find a better interest rate by switching to a new mortgage provider.
You should also consider what might happen if the Bank of England were to raise the base rate. Interest rates are at a record low currently, however as the economy improves, things could change. If you are currently on the lenders’ Standard Variable rate, your payments could rise if the base rate increases in the future. Are you prepared for this? Switching to a fixed rate could protect you from future rate rises.
If you are curious to see if there are any better deals around, it may be worth using the services of an independent mortgage broker.
A mortgage broker will have access to deals from across the market including deals on and off the high street. This means that they will have access to deals that aren’t available directly, only through intermediaries, and these could have much better rates than those you’ve seen.
It’s certainly worth a quick phone call, even if it is just to get peace of mind that you’re sitting at the best rate you can be.
The above post does not constitute advice – financial, legal or otherwise. The information within this article is the author’s own opinion and do not necessarily reflect the views of SO Media or So Smart Money.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE