Remortgaging is part and parcel of having a mortgage. A remortgage involves moving your mortgage from one lender to another, with the option to make changes if you wish. The most common time to remortgage is when your current interest rate comes to an end, before moving onto a lender’s standard variable rate (SVR). However, you can remortgage at any time for a whole variety of reasons, there just may be early repayment charges (ERCs) for doing so during the initial period. Remortgage affordability simply refers to how much you can borrow on a remortgage; remortgage affordability is often different to affordability when purchasing a property.
Principles of mortgage affordability are the same whether it’s a purchase and a remortgage. The calculation is still based on income and expenditure with factors such as the length of mortgage term and the number of financially dependent children/adults also affecting the maximum borrowing amount. One of the key differences in remortgage affordability are the income multiples used. We discussed income multiples in a recent blog if you want to learn more about these. On a remortgage, lenders often allow increased income multiples compared to on a purchase. This means the maximum borrowing amount is often higher on a remortgage than a purchase.
Examples of market-leading remortgage affordability are Santander and Nationwide. On a like for like remortgage, where the exact mortgage balance is being transferred from one lender to another, Santander will use an income multiple of 5.5 across their product range. Again, on a like for like remortgage, Nationwide will use an income multiple of 6.5 up to 90% LTV. Increased income multiples provide those who have had a change in financial circumstances, where debt has increased or household income has decreased, to still be able to remortgage and obtain competitive interest rates. Without these solutions, and those provided by other lenders, borrowers can end up stuck with their current lender making higher monthly payments than necessary.
Given mortgage interest rates are continuing to rise, combined with the spiralling cost of living, it has rarely been more important to be proactive in sorting a remortgage. Remortgage offers can be valid for six months and this is the latest point we advise getting in touch with a broker to start the remortgage process. This gives you the best chance of securing the most competitive new mortgage deal. If you’re thinking about staying with your current lender, it would be advisable to see how they compare to the cheapest lender available across the market. Securing a new deal with your current lender is often only available three months before your existing rate finishes. As well as limiting yourself to one lender, this means you’re also exposing yourself to an additional three months of mortgage interest rate rises.
If you’re looking to remortgage, you want to discuss remortgage affordability or you have any other mortgage or life insurance queries, we’re here to help with free, professional advice. Falling onto SVR and making higher mortgage payments than necessary, especially in the current climate, should be avoided. Starting your remortgage early and securing your new mortgage offer saves time, money and stress!