The Picnic Guide To Remortgaging

Remortgaging can be a powerful tool to use for saving money on your monthly repayments, releasing equity tied up in your home, or securing more favourable mortgage terms. 

Our guide to remortgaging will provide you with all the background information you need, including why and when to consider it, the process involved, and what costs you might need to budget for.  

What Is a Remortgage?

Remortgaging means replacing your existing mortgage with a new one, either with your current lender or switching to a different provider. This switch could help you benefit from better interest rates, release cash tied up in your home's value, or adjust your mortgage terms to suit your current financial situation. 

Unlike purchasing a new property, remortgaging focuses solely on updating the financing of your current home. It's an effective way to avoid slipping onto your lender's often expensive Standard Variable Rate (SVR) once your initial mortgage deal ends. 

Think of it as similar to when you might look at switching energy providers or car insurers, except with a remortgage, it could mean saving quite a lot more than just a few quid on your annual premiums. 

Why Should You Remortgage?

There are lots of reasons you might choose to remortgage, but the main ones would be to:

• Secure a better interest rate and lower your monthly repayments.

• Release equity for big expenses, such as house renovations, a long holiday, or buying a new car. 

• Avoid moving onto your current lender's Standard Variable Rate (SVR) after a fixed-rate term concludes.

• Consolidate all other debts into one single, manageable payment.

• Alter the mortgage term to better suit your evolving financial goals.

When Is the Best Time to Remortgage?

Timing matters when you want to get the most out of remortgaging. Here’s when to start looking:

• Near the end of a fixed-rate deal: Ideally, start exploring remortgage options 3-6 months before your current deal expires.

• When interest rates are favourable: If the market sees a drop in rates, early remortgaging could be financially beneficial, even after considering any early repayment charges.

• When your home's value has increased: A higher property value can reduce your loan-to-value (LTV) ratio, unlocking access to better mortgage rates.

How Does Remortgaging Work?

If this is your first time remortgaging, the process might sound long and complicated, but broken down, it’s pretty straightforward. Here’s a step-by-step guide: 

1. Review your existing mortgage deal: Check for any early repayment charges and see how much is still left on your mortgage balance. 

2. Work out your loan-to-value (LTV) ratio: If you have a general idea of the value of your home, you can work out your LTV ratio by dividing your outstanding mortgage by the property value and multiplying by 100. Lower LTVs typically mean you’ll qualify for lower interest rate deals. 

3. Define what your aim is for remortgaging: Do you want to save cash? Borrow more money? Shorten your term? Be clear about what you want to achieve. 

4. Speak to a mortgage broker (like us!): You can either compare remortgage deals on your own or work with a mortgage broker, which can save you a lot of time and potentially more money, as they will already know where to find the most competitive rates. 

5. Choose your preferred remortgage deal: This could be a fixed-rate mortgage, if you prefer to know that your repayments will stay the same each month, or a variable-rate mortgage, where your repayments can rise or fall (either directly or indirectly) with the Bank of England base rate. 

6. Apply for a Mortgage in Principle (MIP): An MIP will let you know how much a lender could be willing to let you borrow without impacting your credit score. 

7. Submit your mortgage application: You'll need to provide payslips, bank statements, ID, and proof of address. Our mortgage team can help with this stage. 

8. Property valuation: Your new lender will want to check the value of your home to establish the exact loan-to-value ratio (LTV).

9. Legal Work: A solicitor will handle the legalities of transferring the mortgage from your existing lender to your new one. 

10. Mortgage Completion: Once everything is approved and legal checks are complete, your new mortgage begins, and the old one is paid off.

How Long Does It Take?

Typically, a straightforward remortgage takes between 4 and 8 weeks, although timescales can vary depending on the complexity of your application and the lender you’re using. 

For example, if you’re switching to a new lender and want to release equity for home renovations, this may take longer than if you’re simply remortgaging onto a new mortgage deal with your existing lender (more commonly known as a product transfer). 

Do You Need a Deposit?

Yes, but when you remortgage, your deposit tends to come from the existing equity in your home, which is the difference between the property’s value and your current mortgage balance. 

So, for example, if your house is worth £200,000 and your outstanding mortgage balance is £120,000, the equity is £80,000. This means your loan-to-value, for remortgaging purposes, is 60% (£120,000 / £200,000 x 100). 

Remortgaging Costs

Despite all the key benefits of remortgaging and the potential to save money on your monthly repayments, there are also certain costs involved, which could include: 

• Early Repayment Charges (ERCs). An ERC would ONLY APPLY if you leave an existing mortgage deal before the end of the term. ERCs are usually based on a percentage of your mortgage balance. 

• Arrangement fees for setting up a new mortgage. Arrangement fees can vary depending on the mortgage deal you choose and the lender you use. The amounts typically range from £0 to £2,000. 

• Valuation fees. Some lenders may offer free valuations as an incentive for switching your mortgage. If not, the typical fees are between £250 and £500. 

• Legal fees. Typical remortgaging conveyancing fees, depending on the amount of work involved, range from £300 to £400. 

In addition to these costs, if you’re using a mortgage broker, they may also charge a fee for their service, which is usually either a set amount or a percentage of the mortgage balance. 

If you’d like to understand Picnic’s fee structure, take a look at how it works.

Alternatives to Remortgaging

If remortgaging doesn’t feel like the right fit for you, there are other options available you can consider, namely:

• Product transfer: Same as a remortgage but with your existing lender, so it is much more straightforward and with no need for any legal or valuation fees (unless you’re borrowing more money)

• Second-charge mortgage*: As the name suggests, a second mortgage on your property using available equity and is an entirely separate secured loan with its own repayment terms. 

• Personal loan: Ideal for smaller borrowing needs without altering your mortgage. A personal loan can also be set up much sooner (within days) and over a shorter term.

*This service is offered by referral to a third party