A Guide to Remortgaging in the UK

Rising mortgage costs in the past year have further precluded many from homeownership, while those exiting fixed-term mortgages are faced with dramatically increased monthly payments. For those with homes, remortgaging is an essential practice in this regard – but what is it, and how does it work?

What is Remortgaging?

Remortgaging is, quite simply, the act of entering a new mortgage agreement in relation to your home. The vast majority of homeowners in the UK are homeowners with thanks to a mortgage – which, for the uninitiated, involves borrowing the value of a property against said property in order to purchase it, with pre-set repayment terms over a pre-set period of years. Remortgaging is, essentially, re-entering this process with the same property. Many people before they sell to increase value with redecorate and use their DIY painting skills, update the bathroom, replace the boiler or buy some items to decorate the home.

Those with mortgages will understand the stress involved in procuring one. While future mortgage applications are a little easier to follow through with, even if only from prior experience, it may not be immediately obvious why someone would remortgage. What follow are the three most common reasons behind remortgaging, and the way they work.

1 Better Mortgage Rates

First and foremost, remortgaging is an opportunity to avail of better repayment conditions with a new lender. Mortgages are subject to interest, which follows Bank of England interest rate adjustments and (to some extent) the mood of the market. 

When a mortgage reaches the end of its fixed-rate period, a standard variable rate is applied, which is subject to market fluctuations. As such, mortgage-holders who initially landed a mortgage with a low fixed rate could find themselves facing higher monthly payments courtesy of a higher variable interest rate. Remortgaging with a new lender allows them to fix in a more favourable rate of interest for the coming years – either saving their monthly outgoings in the short term, or hedging against future hikes to interest rates.

2 Releasing Equity

Another reason for which homeowners might remortgage is, essentially, to access some of their home’s value in the short-term. House values tend to increase over time, reducing the LTV (loan-to-value) ratio of a home against its mortgage. In remortgaging, homeowners could borrow that increased value as equity, without increasing the amount they spend on their home. 

One purpose-built financial product for equity release is the lifetime mortgage, which eschews fixed repayment terms in exchange for the value of the mortgage on the home’s eventual sale. This allows those facing retirement to access equity in their home with ease.

3 Consolidating Debt

Finally,remortgaging can be used by homeowners as an opportunity to consolidate various debts they may be struggling to cover. Releasing equity via a remortgage can enable the paying off of extant debts using the home’s value, at the expense of extending future repayments.