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How to Remortgage in a Difficult Market

 

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Recent figures from the Bank of England and the Council of Mortgage Lenders (CML) reveal that the number of remortgages taken out has fallen 14% from April to May this year. Over 12 months the figure is more marked; down 23% since May 2007. Although remortgaging is the best way to save several hundred pounds per year, these figures are hardly surprising; in the current climate, so many mortgage products have been withdrawn, there is no longer much out there to tempt the homeowner into switching. Many borrowers are opting to stay with their existing lender at the end of the initial fixed period, even if this means a substantial hike in monthly payments on the lender’s standard variable rate (SVR).
The banks’ attitude towards the remortgage market is somewhat mixed. Woolwich and Nationwide have announced that they will be cutting the price of their fixed and tracker deals but the likes of Alliance and Leicester, HBOS and Abbey stated that they would be changing the terms of their lending to reflect rising household bills. Presumably this means that their calculations will reflect less disposable income for prospective borrowers and therefore freezing out even more potential customers. HSBC have announced a rate of 4.99% but the fee of £2,499 means that most are better off on a loan with a higher interest rate and a lower fee. According to Moneysupermarket.com, HSBC’s 5.49% deal will work out cheaper for all mortgages apart from those between £212,000 and £250,000.

 

 

The advice for borrowers approaching the end of a fixed rate period is to plan ahead well in advance. You should start looking for a new deal at least three to six months in advance. It is possible to “reserve” a rate with some lenders for up to six months in advance. If you can’t find, or are simply not eligible for a competitive rate loan elsewhere then staying with your current lender and moving to their SVR may not be the end of the world. Some SVRs are looking quite competitive in the current market, in comparison to some fixed rates.

 

Remember also that the SVR is not a forgone conclusion. Talk to your current lender; they may play ball and put you onto another competitive rate - rather than lose your custom. Above all, don’t panic; there are no penalties for switching away from your mortgage once you’ve exited the fixed “honeymoon” period, so you can always remortgage later when conditions are more favourable. Having just said that - watch out for mortgages that tie you into an Early Redemption Charge (ERC) after the fixed rate has finished. An example of this underhand trick is the Norwich & Peterborough Building Society who are now trying to tie you in for a couple of extra years after the discount period. Move early and face a penalty of 5% of the outstanding balance.

 

If you have savings, it could be an option to use them to create more equity in your property by paying off a chunk of the current home loan. This will give you a better loan-to-value ratio and increase the number of mortgage products available at more competitive rates.