Getting ready to remortgage

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, and proving this has become even harder since the cost of living crisis.

To estimate how much you might be able to borrow, have a read of our How much can I borrow? guide (which also contains a calculator), 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, but in brief:

• The lender will add up your basic salary and a proportion of other types of income. This will normally include any bonuses, commission, benefits and second jobs.
  
  
• It will then look at your debts and outgoings. For example 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. This is to build in a cushion for any rate rises. The lender may then reduce the amount it's willing to lend you to make sure you could afford the mortgage.
  

If you're currently in mortgage arrears, remortgaging might be more difficult. If you're in arrears, or fear you are about to go into arrears, it's imperative you speak to your lender immediately. See our Mortgage arrears guide for full info.

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

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? This is sometimes called an 'exit fee' or 'deeds release fee'? If so, how much is it?

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.

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.

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 bands where interest rates really drop are at 90%, 80%, 75% and 60% LTV.

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.

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

Prepare these a few weeks in advance, as your lender may want to see any, or all of:

• Your last three months' bank statements
• Your last three months' pay slips
• Your last three years' accounts/tax returns (if self-employed)
• 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.