If you’re looking to remortgage it might seem like now isn’t the time. Actually though, things are looking up for mortgage lending. It’s not easy credit time again, but it’s certainly not as harsh as it was.

• The state of the mortgage market today (August 2010)
• What is remortgaging?
• Three steps to finding the best mortgage deal
• Do’s and don’ts

How things currently stand (August 2010)

There are several reasons why homeowners are being encouraged to take advantage of the market and remortgage:

• There has recently been a surge of new mortgage deals from lenders (both tracker and fixed) that have cheaper rates than were previously available. Nationwide has just cut it’s remortgage rates by 0.2% for instance.
• The Co-operative bank and Britannia have seen a 31% increase in mortgage applications and the Council of Mortgage Lenders reported a 5% lift in lending last month – signs that the housing market is making a gradual improvement.
• At the same time, some lenders have recently increased their Standard Variable Rates (SVRs). (This is the default mortgage rate you get landed with when your current deal comes to an end.)  And it looks like mortgage providers are going to raise their SVRs further still.
• This means that for many people, remortgaging works out cheaper than leaving your mortgage to automatically go onto your lender’s SVR.
• If your credit rating is good you can afford to shop around. If it isn’t good, find out here how to clean up your credit record. You’ll need to do that in order to get a good deal later on!

So where does this leave me?

• If you’re paying an SVR of 3.5% or more – or you will be in the near future when your current mortgage deal runs out – you should at least consider remortaging. There are some great deals around and they might get better now that we have a new government and everyone’s feeling a little more confident (for the moment!).
• We recommend talking to brokers London and Country to advise you on your personal circumstances. We like them because they are completely independent and cover the whole market – so you can be sure you are receiving impartial and unbiased advice. They will also provide free advice and won’t charge you for getting quotes either!
• If you have less equity in your property – say around 10% – you need to be extra careful in your research. A fixed rate mortgage could be more suitable for you (depending on your circumstances). Again, London and Country can advise you on this.
• The key point is that the majority of SVR rates can’t compete with the current fixed-rate deals – so don’t pay a higher rate if you can avoid it!
• If going for a fixed-rate deal, it’s probably best to go for a five year fix at the current rates. Two or three year fixes are a cheaper option (at least to begin with) but they don’t protect you from interest rate rises over the long term.
• However, there are still some reasonable tracker deals around with interest rates remaining at rock bottom – and looking likely to stay that way for a while yet.

Act now

• The general long-term fall in house prices has meant that your loan-to-value has been getting worse (depending on where you live – some parts of London, for example, have bounced back up again). So act now if you need to remortgage in order to grab the best rate available.
• Three steps to finding the best mortgage deal.
• Talk to independent brokers London and Country for a free quote.
• Download our FREE comprehensive Mortgage Guide

So do it now before you lose out. Get in touch with London and Country who will search the whole of the market and bring you the best deals. If you find a good one, agree to it asap – you can always change your mind later on if a better one turns up (although if you’ve paid an arrangement fee to the first one you may lose that if you switch, so factor that in).

Also, we’ve put together a quick and fun guide to getting a mortgage to give you an idea of what you should be doing now in order to get the best price possible and minimise your ‘mortgage shock’. Download it now and send it to your friends – it’s completely free!

What is remortgaging?

There are two types of remortgaging.  The first is simply transferring your mortgage from one company to another or moving it to a different type of mortgage with your current lender.  This is what you need to do when you come to the end of a fixed deal. (If you don’t you will be put on your lender’s SVR which is likely to be an expensive rate.) When you remortgage for this reason, the balance of your mortgage remains the same. You are just transferring to a deal with different rates of interest.

The second type of remortgaging is when you need to borrow more money, so you take out a larger mortgage in order to pay off other debts or perhaps buy a car. We advise against this wherever possible.

This article deals with the first type of remortgaging: those who are coming to the end of their fixed term period (where interest rates remain at the same rate for the first two years or more) and are facing higher interest rates unless they change mortgage.

Three simple steps to get the best deal

We’ve put together three simple steps to help you get the best deal for you:

• Start looking now

If you’re coming towards the end of your fixed-term period, start looking straight away. You can arrange a remortgage up to six months before the end of your fixed term period – and because the good deals are snapped up so quickly at the moment, arranging it early is the best thing to do. If you find a better deal later on it’s fairly easy to cancel one that you’ve signed up to before the money has been transferred over.  So if you do find a good deal, grab it quick smart – you can always get out of it later on.

• Get a broker

The second thing that you should do is get yourself a decent mortgage broker.  A good mortgage broker will look at the whole of the market for you (not just a few companies that they are tied to) and be able to get you the best deals that are on offer.  Moneymagpie has teamed up with London & Country – one of the best independent brokers in the UK – you can speak to them for free about your mortgage needs.

If your broker does find you a great offer, you should also consider having a chat with your current provider to see if they can match the offer.  They won’t always be able to – but if they do, you can avoid the (sometimes excessive) exit fees that are involved with changing your mortgage provider. You may get cheaper arrangement fees.

• Start budgeting

As soon as you start looking, you should start to budget for your new mortgage.  Your new deal may be more expensive than your current payments, so you should start budgeting increased mortgage payments into your monthly expenditure. However, as interest rates are still currently at rock bottom due to the economic crisis, you may get a better deal than you have currently. In which case we suggest you continue paying the same amount as you did before (or even more if you can afford it) so that you can pay off your mortgage quicker and save yourself a TON of money in wasted interest payments!

How much will it cost?

The costs that you will have to fork out for straight away are the arrangement fees for the new mortgage and the exit penalities on your current mortgage.  These vary greatly across different banks and different mortgages, but can be between about £100-£3,000.  More recently, arrangement fees have become a tool to manipulate comparison tables.  By offering a lower rate of interest but high arrangement fees a mortgage provider can get up high on comparison tables. They then make the money back by hiking up arrangement fees.

This can work to your advantage: if your mortgage is over £200,000 you’ll probably save money by paying a higher arrangement fee and then lower interest. However under £200,000 it’s probably better to go for a slightly higher interest rate to save on arrangement fees.  For more information on cost see our article on mortgage set up costs.

What if I can’t get something I can afford?

If you are facing real problems: either no one will offer you a new mortgage or the ones you are being offered are simply too expensive, then you have two choices. Either you will have to be resourceful and try to make more money out of your house in order to be able to afford it, or, if this is not possible, you should get help and advice to stave off repossession.

Ways to make money from your home

• You can try renting your driveway or a room in your house (the latter is tax-free income up to £4,225 a year).  Renting to a foreign student can be the best of both worlds because you get to make money from them but they tend not to stay long so you don’t have to put up with the same person for months and years.
• Alternatively, if things look really tough, you could move out of your house entirely for a year and rent the whole place out.  You would either have to find an accommodating friend or pay rent to live somewhere smaller and cheaper, but you could end up making enough money off the rental income to cover the cost of both your new residence and your mortgage.

If things are looking really bad…

If you really can’t afford it, you may have to sell your home, leaving you free to rent for a while whilst the market gets back on its feet.  This is not ideal but it is better than having the place taken off you. In this situation, do what you can to make the property look as attractive as possible and put it on the market at an attractive price. That way you will be able to get a quicker sale and deal with your mortgage problem earlier rather than later.

If the situation is even worse than that then go DIRECTLY to one of the charitable advice agencies below – particularly the Citizens Advice Bureau and Shelter.

Do’s and Don’ts

Don’t be tempted to use a sale and rent back company to sort this all out for you.  We have not found any of these deals to be good for the homeowner. They will often hugely undervalue your home and then, after a year or so, they could hike up your rent to make you leave.

Do get help quickly. If you are facing real debt problems and fear you may be repossessed, remember there are free services there to help you. Get in contact now with the CCCS (Consumer Credit Counselling Service), the Citizens Advice Bureau or National Debtline. Also the charity Shelter has a lot of experience in dealing with housing problems and is very helpful.

Useful links

• London & Country Mortgage Brokers
• CCCS
• National Debtline
• Citizens Advice Bureau
• FREE Moneymagpie Guide