The furlough scheme, or job retention scheme, is open until the end of October 2020, although it is changing from the beginning of August. Lenders are likely to review their policies too, but at present, most have said that they will accept remortgage applications from furloughed workers.
In May 2020, the top 10 mortgage lenders in the UK confirmed to Which that they will not carry out affordability tests on existing customers wishing to remortgage on a like-for-like basis, so customers will not be affected if they have been furloughed. However, if a customer wishes to borrow more money, their finances will be assessed.
Typically, however, if someone is applying to another lender, their finances will be assessed. Most lenders have said that they will only take into consideration the furlough pay – so you might be assessed for affordability based on 80% of your wages if you are not receiving an employer top-up. However, some lenders have said they will also take employer top pay up into account.
You will need to look around to find the right lender as, unfortunately, some have capped loan to value rates (LTVs) – some even down to 60%, which, whilst this should bring a lower interest rate, it also means that a buyer has to find a 40% deposit or, a remortgage of only 60% of the value of the property can be sought.
Why should I remortgage?
There are many reasons why you might want to remortgage your property – everyone has different family lives and there are several reasons why a remortgage might be useful to you. For example:
The Bank of England base rate is currently 0.1%, so, if your fixed-rate mortgage is about to come to an end, now could be a great time to find a different mortgage offer at a cheaper interest rate than you are currently paying. It might be possible to simply change to a different mortgage product with your existing lender – they will call this a product transfer. However, you should look around, as, even though over 900 mortgage products have been withdrawn since the beginning of the COVID-19 lockdown, there are still thousands of deals available. Do be aware that if you move out of a fixed-rate mortgage before it comes to an end, you may be stung with large repayment fees or exit fees, so do make sure that you weigh up all the costs against the savings you would make by moving lenders. If you decide to stay with your lender at the end of a fixed rate, you will probably be moved onto that lender’s standard variable rate (SVR) – which is likely to be quite high.
Getting a better deal
If, for example, the value of your property has risen significantly since you took out your mortgage, you may want to take out a new mortgage based on the current loan to value rate (LTV). With a lower LTV, you can usually secure a mortgage with a lower interest rate. LTV rates of 80% or less usually attract the lowest interest rates.
You might want to release equity in your home to buy another property, for example. You will need to have enough equity in your existing property to either buy the new property outright or find the deposit needed to buy the new property. You may also be able to remortgage your existing property to purchase a buy-to-let property, but you will need to check this with your lender. You may need to switch mortgage products to do this and the interest rate is likely to be higher. Don’t forget your monthly payments will increase if you increase the value of your mortgage, so do make sure they are still affordable.
You might also wish to raise money to carry out renovations on your existing property, such as new windows, loft conversions, extensions.
You may wish to remortgage your property in order to pay off any debts. This should be possible, but do be aware that it is not usually the cheapest way of doing so it as, whilst the interest rate is likely to be cheaper than a loan, you will probably pay more in the long run due to the length of time you have left to pay off your mortgage.
Paying more off your mortgage
You may be in a position where you want to pay more than your monthly mortgage payments so you pay off your mortgage quicker. However, some lenders don’t allow this, so you may need to look for a different lender and remortgage your property.
How can Graysons help with my remortgage?
If you are switching to a new lender, you will need a solicitor to carry out the legal work required. Graysons property experts have helped thousands of clients ensure that their remortgage runs smoothly. Much of the work we do is carried out in the background, but some of the main tasks include:
- Conducting ID checks
- Obtaining the title information document (title deeds) from the Land Registry
- Obtaining a mortgage redemption statement from the existing lender and repaying this on completion
- Checking your new mortgage offer and ensuring the property meets the new lender’s conditions
- Carrying out:
- a bankruptcy search
- a Land Registry priority search
- the standard searches if required by your new lender (local authority, coal mining, water and drainage, and environmental) or obtaining indemnity insurance if they don’t require these
- Completing the remortgage
- Registering the new mortgage with the Land Registry
Contact our property team now to discuss your matter or to make an appointment, which at present will be by telephone, email or video call. We are taking steps to reopen our offices to clients on a strict appointment basis at some point in July, consistent with the most recent government guidance. Further information can be found on our COVID-19 web page. You can also find out much more about remortgaging and buying or selling property on our web pages.
Author: Caroline Murray, partner and head of the property department.