Getting ready to remortgage

When does the remortgage process start? Look early – it can take time to find the best deal

To maximise your chances of getting the top rate possible, you want to start looking at rates 14 or so weeks before you want the remortgage to actually complete.

Don't panic if you don't have that much time, just get started as soon as you can. When it comes to remortgages, don't loyally stick to your current lender – though it is always worth checking its rates to give you a benchmark, as if it has a competitive deal, it's much less hassle when you remortgage.

But, don't automatically renew. Always search what's out there, as you could make £1,000s of savings. See the market's top rates with our Mortgage Best Buys tool.

Once you successfully apply to a lender, you receive an offer with an expiry date. This effectively means the offer can sit and wait for you to action it, effectively reserving the rate for you.

Check your credit score before they do

You need to convince lenders that you've got the financial discipline required to pay back your mortgage. One way they investigate this is by searching your credit report(s) to find out if you've a good repayment history.

Your credit report lists your past credit cards, loans, overdrafts, mortgages and even mobile phone and some utility payments, for all accounts that were open over the past six years.

It used to be that you'd have to pay to get your credit report, though now you can get them all for free. It is worth checking all of them, as you don't know which one(s) your future mortgage lender will check, so ensure they're all up to scratch.

We launched the MoneySavingExpert.com Credit Club in 2016, tying up with Experian – the UK's biggest credit reference agency – to bring you your free Experian Credit Report. Just sign up, and you get your credit report and score, as well as a personalised assessment of where your credit profile is strong, and where it might need work.

There are also two other credit reference agencies in the UK, Callcredit and Equifax. You can also see your credit report for each of them for free too:

• Clearscore for Equifax*
• Noddle for Callcredit

For more information on how to do this read our Credit Scores guide.

Quick questions:

What's recorded on my credit report?

What's not recorded on my credit report?

You can lock in a rate now to use up to six months later – insurance against rate rises

If you're locked in to your current deal for up to another six months (ie, there are big fees to switch any earlier), you could secure a rate now to use months later to protect against the threat of rate rises.

Most mortgages allow you to pay off another deal from three months after acceptance, but a few let you go up to six months later. So in April, even if your deal expires in October, you could lock in today's rate.

The risk is, if better deals emerge in the meantime, it could have been beneficial to have waited. If that happens, and you decide to ditch the first new deal you've got for another one, you'll almost certainly pay a second lot of fees – so think of the first lot as an insurance policy against rising rates.

Importantly, we're not saying do it. We're saying weigh up the cost – for many it's best doing that with a broker. Key info is below...

This is a complex subject so we've asked David Hollingworth from broker L&C to check the info out. Many thanks to him for that.

Play the field to find the top rate

Starting the search early means you can find and reserve a top rate as a safety net. Then as time progresses, if a more attractive rate becomes available...bye bye lender X, hello lender Y. But there are three things you need to watch out for...

1. If you spend money on lender X, don't expect to get it back if you dump it for someone else.

   Carefully weigh up the benefit of reserving a rate against the cost of losing any upfront fees. Thankfully not every lender charges these.

2. Don't tell lender X you're interested in someone else until you've definitely got lender Y in the bag.

   If you have a rate reserved and decide to chase another, it's probably best not to tell the first lender until you're definitely ditching it. Wait until you have a formal mortgage offer from lender Y before you burn any bridges.

3. Don't get a reputation.

   You can't have them all. Ideally you wouldn't want to apply for more than three. Every time you apply a search goes on your credit report, which future lenders can see. If they see lots of applications, they'll think you're that drunk in the bar asking everyone out and getting rejected all over the place...not attractive.

   Playing the field takes a bit more effort, so you might want to use a broker to do this slog for you. If you're using a broker, make sure it re-checks the market just before you commit in case rates have improved – do NOT assume it will do this automatically.

Can you borrow the amount you need?

Lenders used to multiply your main income by up to five times to work out your maximum remortgage size. Now it's a lot more complicated as the lender has to be sure you can afford the repayments. Use our How Much Can I Borrow? calculator to estimate how much you might be able to borrow, though see it only as a rough guide, as that figure will come down the more committed expenses and debts you have.

Each lender has a different formula when it calculates how much it'll lend you. It will add up your basic salary and a proportion of other types of income, including bonuses, commission, benefits and second jobs.

It will then look at your outgoings, such as debt repayments, maintenance payments, school fees, utilities, food shopping etc to work out your disposable income. Your disposable income needs to not only cover the new mortgage payment, but cover the mortgage payment if the rate was to rise to 6 or 7%. This is to build in a cushion for any rate rises.

The lender will consider your debts and outgoings, such as debt repayments, maintenance payments, school fees etc. It may reduce its initial figure to make sure you can afford it – plus it'll want to see enough breathing room in case of unforeseen events.

Pick your remortgage date to avoid fees

Many mortgages have an early repayment charge for the initial incentive period. If you remortgage during this period, you'll trigger the charge and it's usually thousands of pounds.

Check if yours has one. If it doesn't, you're free to remortgage at any time.

If it does, and you don't want to pay the charge, remortgage for the next working day after your current mortgage ends and you're free from penalties.

If that's not for a while, and you have reason to remortgage other than reaching the end of your current deal, find out how much the charge is. This way, you can work out if it's financially viable ditching your old deal. For more on the costs of remortgaging see our How Much Will Remortgaging Cost? guide.

Get the exact figure you owe so you don't end up with a shortfall

Don't just guess. Phone and ask "How much would I need to pay to clear the mortgage on, for example, 1 July 2019?"

Giving the date means the lender should take into account any repayments you are due to make between now and then (so tell it if you plan any overpayments).

This will give you an exact figure of the amount you'll need to borrow when remortgaging. Don't rely on a rough estimate of your own as it could mean you end up with a shortfall or taking a pricier remortgage than you needed to.

You should also ask:

• Does that include an early repayment charge? If so, how much and on what date could I repay the mortgage without a charge?

• Does that include any other fees, such as an admin fee – sometimes called an 'exit fee' or 'deeds release fee'? If so, how much?

The lender should only charge you these fees if you were told about it when you first took out the mortgage. It would need to be on the offer document and the Key Facts Illustration. For more on fees see our How Much Will Remortgaging Cost? guide.

Self-employed? You'll have more hoops to jump through...

If you're self-employed or would struggle to prove your long-term income – you're a contractor, for example – getting accepted for a remortgage is tougher. You'll need to show:

• Business accounts.

  You need to show preferably three years of accounts – though two can suffice – usually signed off by a chartered accountant. Or...

• Tax returns.

  If you can't show business accounts then two or three years' tax returns are the next best option.

You'll be assessed on net profits, not turnover. If this is likely to be complex, using a mortgage broker could help as they'll know which lenders require what evidence.

While this can work for those in established businesses, it could mean that if you've become self employed since getting your last mortgage and it's a recent change, you simply won't be able to remortgage.

Note that self-cert mortgages – mortgages where you declare your own income and the lender doesn't require proof, common in the mid-noughties – are no longer available.

Estimate your property's value

Before you can start to look at rates, you need to get a view on what your property is worth. It does need to be realistic as when you apply for a mortgage the lender will send out an independent valuer to confirm the figure.

Don't just a pluck a figure out of the air. Do some research – use our Free House Price Valuations guide to help.

Calculate how much of your home you own

Once you've figured out how much your property might be worth now, you'll be able to calculate what proportion of that value you still owe on your mortgage (and know how much equity you have in your home) your so-called loan-to-value ratio (LTV) – and therefore what LTV band deals you're looking at for your remortgage.

It's easy to get this figure – just divide the amount you still owe on your mortgage by your home's current value. Times the figure you get by 100, and that's your LTV as a percentage. So, if you owe £150,000 on a £200,000 house, that's a 75% LTV.

Bear in mind that your LTV ratio now might be wildly different from when you got a mortgage the last time. If your property's gone up in price, it's likely you'll have dropped an LTV band or two. If it's now worth less than it was, you may be looking at a higher LTV band.

LTV is important. The more equity you have in your property (the amount you own debt free), the lower the mortgage rate you'll get.

Try to drop an LTV band – it'll make it cheaper

If you still owe more than 60% of your home's value on a mortgage, the more you can do to drop an LTV band, the cheaper your remortgage will be. The main pricing bands are: 95%, 90%, 85%, 80%, 75%, 70%, 65% and 60%.

There are two things you can do to get into a lower LTV band. You could:

• Borrow less

  Putting some of your own money in at the point of remortgaging is well worth doing if you're really close to the next band.

• Try to get a higher valuation figure

  How much more would your property need to value at to push you down another band? An extra £1,000 in value could make all the difference.

  So how can you get a better valuation? This is more art than science, it might work for you, or it might not. But if you don't ask, you don't get, so it's worth doing a little bit of legwork.

• Set the valuer's expectation high

  Always put the top valuation you think the property could achieve on your application.

• Take a good look at your home

  Does it look tidy and well cared for? Maybe get a particularly house proud friend to take a look as it's amazing what you don't notice when you see the place everyday.

• If possible, be at the valuation

  Sometimes this isn't an option as the valuer might just look at the exterior so you won't be given an appointment time. Sometimes they don't even attend the property but rely on their database and the internet.
  
  It's likely if they do come round they'll be on a tight schedule, so don't be put off if they don't sit down for a cup of tea.

• Give the valuer comparisons.

  Tell the valuer about similar properties to yours that sold for big money. Valuers rely on these 'comparisons' to justify their valuation. Properties that have sold will carry more weight than properties that are advertised, or under offer.

A word of warning here. Hope for the best, but prepare for the worst. You need to be ready for the valuer not agreeing with your figure.

If this happens and it pushes you into a different LTV band, you might find that the lender you've applied to might not offer the best rate for your new LTV. This means you might be better off applying to another lender. But weigh up the costs of any delays or any fees you've paid upfront before jumping ship.

Sort out your finances & get remortgage ready

It's all very well having a perfect credit record, but if your finances are all over the shop, your mortgage lender's going to want to know why.

There are a few things you should (or shouldn't) be doing in the weeks and months before you apply for a remortgage deal:

• Don't apply for credit just before a mortgage
• Avoid erratic or heavy spending in the weeks before you apply
• Stay out of your overdraft

Lenders like to see that you're managing your money well, and – more importantly – that you have enough cash to repay them each month. Buying large items and dipping in and out of your overdraft won't mark you as a reliable borrower.

Sort your paperwork to speed up the process

Remember all the paperwork you had to get together when you applied for your last mortgage? Yep, you've got to produce it all again...

Many lenders won't take printed internet statements so if you've gone paperless, you may need your bank(s) to send you original copies. Prepare these a few weeks in advance in case you need to wait for your bank or HM Revenue & Customs to send originals.

Your lender may want to see any, or all of:

• Your last three months' bank statements
• Your last three months' pay slips
• If self-employed: your last three years' accounts/tax returns
• Proof of bonuses/commission
• Your latest P60 tax form (showing income and tax paid from each tax year)
• ID documents (usually a passport)
• Proof of address (eg, utility bills or credit card bills)

Getting the paperwork the lender needs sent in one batch can speed up the process. It also reduces the chances of your application being reviewed by more people.