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How To Remortgage Your House Whilst Self-Employed

The latest industry news and guides from Active Mortgages.

Remortgaging to a lower interest rate can help alleviate financial stress, but it’s important to understand the process.

Whether your self-employed, a freelancer, sole trader or company director, we have produced this helpful guide on how to refinance, which will teach you how, when, and why to remortgage. So you’re never paying more than you have to.

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In this guide

What is a remortgage?

A remortgage is when you replace your existing mortgage with a new one.You can remortgage with your current lender (also known as a product transfer) or switch to a different bank or building society.

Mortgage lenders offer discounted interest rates for set periods of 2-10 years. After your fixed rate mortgage ends, unless you remortgage, you will be subject to your lender’s standard variable rate (SVR), which may be significantly higher.

Why remortgage?

  • There are several reasons why you could remortgage, but the most common ones are that you want to transfer to a lower mortgage rate, your credit score has improved, the value of your house has grown, or you want to remove or add someone to the mortgage.

    We’ve gone over each of these factors in further detail below.

1. Switch onto a lower mortgage rate

Remortgaging is often done to get a better mortgage rate and avoid paying the standard variable rate (SVR) set by the lender. The Bank of England has hiked base rates 14 times in a row, increasing borrowing costs. As the Bank of England boosts its base rate, variable rate mortgages, including regular variable rate arrangements, are expected to follow suit.

Switching to a fixed rate mortgage can result in lower monthly repayments. Currently, the average 2 year fixed mortgage rate is 5.95%, and the average 5 year fixed mortgage rate is 5.57%. Switching from a lender’s standard variable rate (SVR) to a fixed rate can significantly cut monthly expenditures, as the average SVR rate is roughly 8.2%.

2. Your credit score has improved

If your credit score has improved since your last mortgage, you may be able to remortgage at lower interest rates.

To check your credit score, acquire a free copy of your credit report from Equifax, ClearScore, or Experian and ensure you’re current on all commitments.Get a report from CheckMyFile for a combined report from all three.

3. The value of your home has increased

Another reason people remortgage is because the value of their house has increased significantly. If the value of your property has increased or you have paid down a portion of your mortgage total since your last application, you may be eligible for lower mortgage interest rates. This is because the lower your mortgage balance in relation to the value of your property, the lower the rate you’ll be offered – also known as Loan To Value (LTV).

Remortgaging allows you to unleash equity in your house by increasing the loan size. You can utilise the money for house improvements, debt repayment, or assisting a loved one with their first purchase.

4. You want to remove someone from a mortgage

Remortgaging provides an opportunity to add or remove individuals from your mortgage. This is known as a transfer of equity. When withdrawing a borrower from a mortgage, lenders will assess your ability to repay the amount on your own. If you want to add someone to your mortgage, they must first pass the lender’s credit and fraud checks.

How to remortgage:

If you’re sticking with the same mortgage provider, remortgaging onto a new arrangement is as simple as selecting one of your lender’s other mortgage interest rates, which you can access by logging into your account on their website. Once you’ve decided on a new rate, simply select it, and if your lender authorises it, you’ll be switched over to your new rate when your current offer ends.

If you’re transferring mortgage providers, remortgaging requires a few more steps:

1. Apply for a new mortgage

When you remortgage with a new mortgage lender, you will need to fill out a new mortgage application. You will be asked to give personal information, such as your financial situation and the terms of your current mortgage. You’ll also need to have documents proving your income and paperwork for any credit commitments or loans.

Working with a skilled mortgage broker, such as Active Mortgages, can help you obtain the best interest rates and manage the mortgage application process.

2. Property valuation

Your new mortgage lender will then conduct checks on all applicants listed on the mortgage application. This is to confirm your present situation and look into any previous credit difficulties. They will also arrange to have your property valued.

3. Mortgage transfer

You’ll need to hire a solicitor or conveyancer to handle the paperwork, including setting out and signing the mortgage deed. They will also arrange for the transfer of your mortgage from your previous lender to your new one (some lenders provide free mortgage transfers). Once the transfer is completed, you will have officially transferred to your new lender.

How much does it cost to remortgage?

Remortgaging might be expensive if you have to pay a charge to exit your current mortgage contract early. If you want to change your mortgage contract before your fixed term expires, you will incur an early repayment charge (ERC). The amount you’ll have to pay is determined on how long your fixed rate agreement is valid.

For example, dropping your two-year fixed rate in the first year would likely result in a 2% penalty on your mortgage balance. On a £250,000 mortgage, that’s £5,000. In the second year, the fee is reduced to 1%, and in the third year, there is no penalty.

If you are transferring mortgage lenders, you will also be required to pay an administration cost ranging from £50 to £300, known as a deeds release fee.

When you sign up for a new mortgage, you may be charged a lender arrangement fee. These vary from £1000 to £1,500 and are linked to the lowest rates. You can also select a higher rate with no fees.

You’ll also have to pay for a valuation and legal fees, which vary depending on the value of your home.

How Long does The process take?

If you are simply switching mortgage agreements with the same lender, remortgaging can take anywhere from 15 minutes to 24 hours, as you will not require a valuation or a solicitor. If you connect into your online banking system, your lender will display a list of rates for which you are eligible. Simply select one, and you’ll be transferred to it when your current deal expires.

A refinancing can take four to eight weeks for consumers who are moving mortgage providers or modifying the size or length of their mortgage. You must submit a complete mortgage application and hire a solicitor (unless you use the lender’s complimentary solicitor).

The lender will also need to determine the worth of your property. Lenders frequently employ computer-generated valuations for remortgages, which makes the process faster and cheaper. Use Rightmove or Zoopla’s search tools to estimate your property’s value, equity, and potential mortgage rate.

When is the best time to remortgage?

To avoid early repayment charges, it’s better to remortgage when your current fixed rate mortgage expires.Check your mortgage offer for the expiry date and fees associated with your contract, or ask your lender or broker to find out. You don’t have to wait until your current mortgage arrangement ends to start looking for remortgage deals. You can really start your remortgage application three to six months before your existing agreement expires.

  • What is remortgaging?

    Remortgaging involves switching your current mortgage to a new one, either with the same lender or a different one. This process is often done to secure a better interest rate, borrow more money, or change the terms of your mortgage.

  • When should I consider remortgaging?

    It might be wise to consider remortgaging if your current deal is about to end, you want to take advantage of lower interest rates, or if the value of your property has increased, giving you access to better loan-to-value rates.

  • What costs are involved in remortgaging?

    While there might be enticing offers, be aware of potential costs such as arrangement fees, valuation fees, legal fees, and early repayment charges from your existing lender. Calculating the overall expenses helps in determining if remortgaging is financially beneficial.

  • What documents are needed for remortgaging?

    The required documents generally include proof of income, bank statements, details of existing mortgage, identification documents, and information on the property. Having these ready can smoothen the remortgaging process.

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