Thursday 28 March 2019

Have you re-mortgaged recently?

I was surprised when speaking to my mortgage broker last week that he said most people don’t re-mortgage when their initial mortgage term expires. I thought it was standard practice to take out a mortgage on a certain term and diarise when it comes to an end, so as to then repeat the process. Not doing so means you’ll end up on your lenders SVR (Standard Variable Rate), which currently sits at around 4%-5% across the industry. Now bear in mind that a five-year fixed rate can be taken out at less than 2% and you’ll see there are some big savings on offer!

As the introductory rate comes to a close, some people will be advised by their current mortgage lender that they can stick with them and still get a better deal by taking out a ‘product transfer’. Whilst this does cut out some administration, it only goes halfway to getting a better deal, as it means you’re missing out on seeing the whole of the market and all of the mortgage options that are available.

And that could be a mistake when you consider there may have been a lot of changes to the market whilst you’ve been paying your current mortgage. For instance, did you know there are now lenders offering interest-only mortgages to homeowners, with a fixed-rate of less than 3% for five years?

You may also find that property prices have increased, whilst you’ll have paid off some of your mortgage balance. These two factors combined will make it likely that your LTV (loan to value) will have decreased, meaning you qualify for better rates automatically!

If your LTV has dropped, an alternative to accessing better rates is to release some equity from your home; although be aware that’s how a lot of people got in trouble in the lead up to the credit crunch. Having said that, it depends what you’re going to do with the released equity (which is tax-free). Releasing equity in this way and re-investing it in buy-to-let property is a common way in which landlords have increased their property portfolios in the past. And considering house prices have increased by 32% (an average of £92,839) in Chichester in the past five years, there is a good chance that this option may be available to you.

I’ve written before that buy-to-let mortgage rates are higher than those available to homeowners and that remains true. In fact, at a 75% LTV the cheapest buy-to-let mortgage (2.4%) is 24% more expensive than the cheapest homeowner one (1.94%)! Even so, with interest rates having been so low for a decade now, there’s a good chance that today’s mortgage rates are less than what you’ve previously signed up to.

So, if you haven’t re-mortgaged recently it might be worth a visit to your local mortgage broker. Their assistance in guiding you towards the best deal will mean their fees (which are tax deductible for landlords) should be more than offset by the savings you’ll make over the term of the mortgage.

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