Mortgages are among most homeowner’s largest monthly expenses and paying the absolute minimum in interest is financial common sense. That’s where remortgaging comes in. Many borrowers simply assume they are on a good deal because they were told it at the time they arranged the mortgage, but the market may have moved on since then and they could be missing out on some even better rates.

What is remortgaging?

Remortgaging is simply the process of getting a different mortgage from the one you already have – be it with the same lender or a new one. When you remortgage a property you are effectively scrapping the old mortgage and replacing it with a brand new one. It sounds sensible and often it is, but there are some potential pitfalls to be aware of – for example if there is an ‘early redemption penalty’ meaning you are locked in for a period of time during which you have to pay to get out of the deal you originally signed up to.

Why do people remortgage?

Reasons for remortgaging vary but include the homeowner wanting to save money each month by switching to a better deal with a lower interest rate, or perhaps they want to raise some extra cash to pay for home improvements or other life expenses.

Many people only think about remortgaging when their monthly payments suddenly shoot up because the great deal they were on has expired. Overnight they may find they have gone from being on a very low fixed rate to a standard variable rate which is the lender’s default package. Lenders make more money when borrowers don’t bother to do anything at this time and just pay up at the higher rate. But instead of accepting it, smart borrowers tend to look for a better deal as there is often one out there in the competitive mortgage market.

As well as contacting their current lender, homeowners can hire a mortgage broker to see what better deals may be available. Mortgage brokers spend every day talking to a range of high street banks and specialist lenders about the best rates on the market and are well placed to provide independent advice.

SellingUp’s Expert Q&A: Remortgaging

How soon before my mortgage expires should I be thinking about remortgaging?

Chris Schutrups from The Mortgage Hut: “Depending on the mortgage lender the process can take anywhere from a couple of weeks all the way through to a couple of months.

“The reason for this is you first need to apply to the lenders, who will assess all your documents, complete a valuation and then agree the mortgage. Once the lender has completed their checks and offered the mortgage they will typically appoint a conveyancer/solicitor to then complete checks and finalise the legal process.

“We would typically advise our clients to start looking 3-4 months before as this gives plenty of time should there be any bumps in the road.”

Wesley Davidson from Fox Davidson: “At Fox Davidson we contact our clients six months before the rate ends as it is important to ensure we have plenty of time to get our ducks in line before the rate expires. Most mortgage lenders will offer for at least three months and many for six months. It takes around six to eight weeks from application to drawdown of funds.”

Lynne Dyer from FirstMortgage.co.uk: “The ideal time would be 10 to 12 weeks before renewal date, this way you can check the most competitive deals on the market. It is also worth consulting your existing lender as they may be offering great deals for existing customers.”

Mark Finnegan from Complete Mortgages: “On the basis that most mortgage offers are valid for three months, my advice would be to start thinking about remortgaging around four months before your current deal ends. This will give you time to get all of your paperwork together and us time to source the best available product for you.

“Remember, the mortgage market is exceptionally competitive at the moment and there is an abundance of ‘cheap mortgages’ available; for example, there are many five-year fixed rates that would see homeowners pay less than the current standard variable rate (SVR). As a result, it’s always worth keeping an eye on the market.

“We contact all of our customers approximately four months before their deals end as part of our service, which means that there is no chance that they will absentmindedly ‘slip’ onto the lender’s SVR.”

David Hollingworth from L&C Mortgages: “It makes sense to prepare in good time when remortgaging so that you get a nice smooth switch across to your new rate. Check when your existing deal is due to come to an end and then diarise around three months ahead to start. Although it can be quicker, it can take a month to receive your formal mortgage offer from the point of application. The lender will need to process the application, collect any supporting documentation and conduct a valuation of the property to issue the offer. Most offers will be valid for 3 months and in some cases for six months.

“There will also be some basic legal work required to make the switch although many deals will offer a free package to cover that.”

Rana Miah from justmortgagebrokers.co.uk: “Ideally, you should start looking around for a new deal approximately four months before your current one is due to expire. This gives plenty of time to find the most suitable product. Normally there will be a legal firm taking care of the transfer from one lender to another, but the time frame gives plenty of scope for any delays on the legal side to be taken care of before the client reverts to a higher or variable rate.”

Is there ever an argument for remortgaging before the mortgage expires and paying an early redemption penalty?

The Mortgage Hut: “There certainly is a good argument for this, although typically it’s not worth paying the early repayment charge we have had examples where the client has saved thousands of pounds. Typically it’s free to review this with any good mortgage broker, so it’s always worth asking the question.”

Fox Davidson: “Absolutely, in a falling rate environment, such as the one we are about to see, it could be very worthwhile clients that fixed in at high loan to values on higher rates looking at their current situation. If their situation has improved, either because of the loan to value or perhaps their credit rating then they may now find they have access to much improved interest rates.”

FirstMortgage.co.uk: “Regarding early redemption charges, the only time we would advise to do this would be if this works out cost effective against the new rate, so you would not be paying more to come out of the existing deal. If the remortgage is for capital raising then the ERCs need to be factored into the scenario. A good mortgage advisor will take the client through all of the options available and help find the best way forward.”

Complete Mortgages: This really depends on what you owe versus the level of your early repayment charge, which can vary from 1% to 5% of the amount owing. Either way, the larger the mortgage the more you will have to pay. More often than not the answer is “no”, but it is always worth speaking to a reputable mortgage broker that provides a free initial consultation. Professional advice is invaluable and will help you to make a fully informed decision.”

L&C Mortgages: “There have been instances in the past when borrowers who have been tied into a high rate have found it beneficial to switch to a new, lower rate despite having to pay early repayment charges (ERCs). However you need to do the maths carefully as the ERC can be substantial. Unless the penalty can be saved back over the remaining tie in period it won’t make sense to move. One tip is to check whether your ERC reduces over time, as many will step down each year so a matter of weeks could see the penalty fall.”

justmortgagebrokers.co.uk: “Very rarely will this work out in your favour. Sometimes you may find yourself on a much higher rate than the current rates available in the market. If you’re tied into a higher rate for a long period of time then it could work out that after paying any early repayment charges and working any fees into the new monthly payment you may be better off. Only in situations where there is a large loan size is this more likely to be achieved.”

What advice would you give about how to choose the right mortgage broker, and are there any red flags to look out for?

The Mortgage Hut: “It can be a minefield finding a great adviser however we would always suggest the following: Ask friends and family for recommendations; check out the brokers website and social media for genuine customer reviews; look for awards and commendations from customers and consumer/trade bodies and don’t be scared to ask an adviser about their experience.”

Fox Davidson: Choosing an independent or whole of market broker is the way forward as they will be able to recommend terms from the whole of the market and will not be limited to a panel of lenders. Check their reviews on Google and other sites to ensure they constantly get good feedback. You should then know you are in good hands.”

FirstMortgage.co.uk: “When picking a mortgage broker I would check they have access to the whole of the mortgage market; if they charge a broker fee, they are regulated by the FCA; look at recent reviews regarding customer service – social media is a powerful tool for this.”

Complete Mortgages: “A personal recommendation by a friend or colleague is usually the best route. If you are searching online, look out for a broker whose website clearly lays out their services and has good customer service ratings. In terms of “red flags”, I would say that a broker with an out of date website might not be very active in the market or as knowledgeable when it comes to the external factors that affect mortgage rates. Likewise, a good broker will offer valuable advice, recommendations and tips online. Read what they have to say and, if you like their approach, get in touch.”

L&C Mortgages: “Taking advice is important in the current market, not only to find the best rate for you but also to ensure that you approach a lender that will be able to meet your needs given the tighter criteria that now apply. When choosing an adviser you should check whether they advise across the market and not just from a limited panel of lenders, which would limit your options. Your adviser should also explain any broker fee that they will charge. Lenders will pay brokers a fee for introducing customers and some like us will not charge any broker fee on top of that. Others will charge a broker fee which could be around 1% of the mortgage amount on top of the lender payment.”

justmortgagebrokers.co.uk: “It sounds obvious, but you should only deal with brokers that are regulated by the Financial Conduct Authority. To get the best possible product, make sure your broker has access to products on an ‘unlimited basis’ or what used to known as ‘whole of market’. If in doubt, ask the broker to confirm this in writing via their Initial Disclosure Document.

“Look for companies that have a well-established track record. Enquire to find out if the broker has back office support as some brokers work on their own and find it difficult to manage their workloads. This can be very problematic if you run into problems with your mortgage application. The duty of a broker does not finish as soon as they find you a product. They should be able to see your case right through to completion. Make sure broker is transparent with their fee structure

“At initial contact, your broker should be clear about how much they will charge and when they expect you to pay them. And lastly, have a look to see if the broker has positive reviews online.”