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Is now the time to re-mortgage?

With mortgage interest rates currently amongst the lowest in recent history, we are receiving an increasing number of enquiries from homeowners looking to re-mortgage their properties to secure a more attractive fixed rate deal.

Five years ago, the average interest rate for a five year fixed rate mortgage with 75% loan to value ratio was 3.48%. Compare that to interest rate of 2.15% now and it is easy to see why an increasing number of homeowners are exploring the option of an early switch.

A deluge of low rate mortgage deals have entered the market, but as with anything prone to extrinsic fluctuation, these rates will not be around for long. Many experts say it’s a matter of when, not if, the costs of borrowing to buy or re-mortgage a property will increase.

But in the meantime, these low mortgage interest rates appear set to stay in the short term at least.

People looking to re-mortgage are spoilt for choice at the moment with many great rates currently on the market from Banks and Building Societies, last month YBS introduced a 0.89% for a 2 years fixed fee and TBS just last week reduced selected mortgages for homeowners looking to re-mortgage by 0.15%.

Looking at the figures, it would seem simply switching would save you a lot of money, but as with most major financial decisions, there are factors to consider.

Early Repayment Charges (“ERC”) and other fees

Most fixed rate mortgages in the market will carry an early repayment charge.

The cost of this charge will vary from lender to lender and depend on the size of your mortgage.

Usually it will range from 2% – 5% of your outstanding loan amount, this may either be a fixed percentage throughout your deal (whether 2, 5 or 10 years long) or if you’re lucky, could be ‘tiered’, meaning the percentage repayable goes down after every complete year of your current deal.

Dig through your drawers, find your paperwork and check the details as ERCs can amount to thousands of pounds, in which case, it could make it more financially viable to stay put until the ERC comes to an end.

An exit fee (or a ‘deeds release fee’ / ‘admin charge’ as it is often more creatively called)  will also apply for closing your mortgage account if you chose to switch to another lender, although this will cost considerably less than an ERC and usually comes in between £50-£200.

On the other side of the fence to the exit fee, you may also face an arrangement fee to your new lender to set up your mortgage, these typically cost around the £1000 mark but can go as high as £2000 as well as the ever present “Valuation Fee” charged by most Lenders.

In addition, unless you opt for a “free/fees assisted legal” product, you may also be faced with conveyancing fees, as well as broker fee (if you choose to use one).

Factor in all these costs and assess what you owe on your mortgage by either asking your lender for a redemption statement or check your mortgage statement. This will give you a clear idea of whether a switch would leave you better off.

Has your house changed value?

With the volatility of the housing market in the last few years, it’s likely the value of your house has changed since you took out your mortgage.

Research houses in the local area similar to yours, this will give you an idea of what valuation figure your new lender will arrive at.

If your property has risen in value, you may fall into a lower loan to value bracket (LTV) and your new mortgage product may well be more cost effective than your previous one.

To work out LTV you simply need to divide the value of your mortgage by the value of your home then multiply the result by 100 to get a percentage. So if for example you’ve got a £200,000 mortgage on a £250,000 property, your LTV is 80 per cent.

So, should I consider re-mortgaging?

Overall, it’s undoubtedly a great time to capitalise and the low re-mortgage deals that are on offer, re-mortgage approval rates have increased 2% year on year in March and as a result the rise in re-mortgaging is set to continue into the near future. However, although the market may be ideal, individual circumstances will differ and you should always seek independent professional advice and consider all the costs before making your decision.

If you are considering re-mortgaging, our expert residential property team can help. Contact is on 0161 930 5151 or email residentialpropertyteam@gorvins.com

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