It might be prime time to refinance

HISTORICALLY low interest rates and government schemes mean that it may make sense, for some borrowers at least, to remortgage their homes. But data from the Council of Mortgage Lenders serves as a stark reminder as to how tight conditions still are.

In 2011, £46.6bn worth of remortgages were taken out by borrowers in 375,000 individual deals. This is down 64 per cent on the pre-crisis levels in 2007 in cash terms, when over a million deals were taken out.

It appears that the market has been sluggish in 2012 too. So far, lenders have approved 211,000 remortgage applications worth £27.6bn – 15 per cent down compared the same period in 2011, when 247,900 were approved. The Funding for Lending Scheme, which is meant to help reduce rates, doesn’t seem to be having much of an effect so far.

Data from Halifax shows that fixed-rate mortgages have fallen by 164 basis points over the last five years. But Halifax found that borrowers are resolutely staying on Standard Variable Rate (SVR) deals.

Given that mortgage payments are one of the largest household expenses, it is imperative to ensure that you are not paying more than you need to. Ray Boulger of John Charcol says that “the spread between rates for a remortgage and SVRs is the highest for several years, making a remortgage more appealing”. It is worth keeping in mind the following tips when considering a remortgage.

BE REALISTIC
Claire Francis of MoneySupermarket says that it is important to get the valuation correct: “Going in guns-blazing with hefty borrowing requirements could backfire as the lender might be put off by a second revised application.”

Often, borrowers make applications based on estate agent’s property valuations. Hugh Wade-Jones of Enness Private Clients advises: “Get several valuations. Surveyors used by the lenders will invariably value your property lower than sales-orientated estate agents, who err on the higher side.”

DO YOUR HOMEWORK
Lenders will throw out applications at the first hurdle and Francis says not to give them more reason than they need, “make sure you are entirely accurate, and fill in all the information that they have asked for”.

Lenders want to see that you have a stable income and may require up to six months’ pay slips as evidence, so it is good to have all this administration in place before you apply. If you are relatively new in your role, it might be wise to hold off making an application for a few months.

Also, review your credit score periodically – regardless of whether you are applying for a mortgage. “Your credit score is paramount when applying for a mortgage,” says Francis, “the better the mortgage deal, the cleaner credit you will need”.

SHOP AROUND
Applying to remortgage can take up to three months, so it is worth thinking about your options before the end of your current deal, giving you time to shop around and see what types of deals are available.

Michelle Slade of Nationwide says that buyers should be aware that “some lenders only have certain deals available if you go to them directly rather than via a broker”. Speaking with your current lender is a good place to start even if you do not remortgage with them, their quote can be a good benchmark.

Lenders cherry-pick their customers with extreme care. They are under no obligation to lend to you or even tell you the reasons why you have been turned down.

When comparing deals, attractive headline rates can be misleading, so look beyond them. High application fees may actually make it more expensive than a product with a higher rate but lower fee.

In the current low interest rate environment some borrowers may find that their SVR offers a better deal than they can get by remortgaging. Be aware of your current and new SVR.

Slade says that you should check that the lenders you are considering charge daily and not annual interest, as each payment will immediately reduce your loan. She prefers to avoid mortgages with insurance tie-ins, as they can be more expensive.

SEEK ADVICE
If your circumstances have changed since your last mortgage application, it may be worth getting independent advice. Mortgage experts will talk you through the process and help you find the deal that is most appropriate for you.

While rates are low and funding is returning, borrowers could save a pile by looking at remortgaging.