Finding a good remortgage

Finding a good remortgage is a question of finding a new mortgage that suits you better than your existing mortgage. This might be a question of a desire for greater flexibility in the way you manage your mortgage, it might follow moving home, it might be needed because an existing mortgage repayment term is coming to an end, or – for many homeowners – will be a question of optimising the cost of the mortgage repayments each month.

The one big problem – as anyone with even half an eye on the financial pages of the press can tell you – is the dire shortage of funds available to the mortgage market these days. Combined with the rapid slowing down of the housing market generally, this has made life for first-time buyers especially difficult. Indeed, the Council of Mortgage Lenders reported – in the Daily Telegraph newspaper on the 15th of January 2009, for example – that only 12,400 loans were advanced to first-time buyers during the whole of the month of November, the lowest total since the Council began assembling such figures in 2002, and 57% down on the same month the previous year.

Relatively speaking, those more interested in finding a good remortgage are rather better off. The Council of Mortgage Lenders also reported that 52,000 remortgages – worth a total of £7 billion – were advanced to borrowers during November 2008, although this was admittedly 25% less in terms of both volume and value than in October.

The overall shortage of funds available for mortgage lending may in fact be favouring applicants for remortgages since these borrowers represent a known risk to the lender. There is a history of regular repayments, made on time, and, in the case of those who have owned their property for a number of years, likely to be a relatively comfortable equity stake in the property. Remortgages, therefore, offer a relatively good risk for the nervous and cautious lending market.

Borrowers like these, in the market for finding a good remortgage, have a number of options. If they are coming to the end of a fixed rate term, their mortgage is likely to revert to the lender’s standard variable rate by default. Following the recent drastic reductions in the Bank of England base rate – to it’s lowest ever of just 1.5% – standard variable rates of even the cash-strapped mortgage lenders have had to reflect at least some of this reduction. Standard variable rates, therefore, might actually represent a more attractive move now than in the past for some borrowers.

Yet others, who have witnessed successive reductions in the base lending rate and who anticipate the possibility of still further reductions might prefer a tracker mortgage, with an interest rate fluctuating in line with the base rate itself. When looking for a tracker mortgage, however, borrowers should be aware that some will have written into them a “collar” which effectively prevents the mortgage interest rate falling below a certain minimum. In this event, the borrower might not get to enjoy the full benefits of a reduction in base rates below a certain minimum rate.

Finding a good remortgage for some borrowers might also be seen as an opportunity to swap a relatively inflexible mortgage for one that offers the chance of varying the monthly repayments – by increasing the repayments made or reducing them at other times – within certain limits, according to fluctuating personal circumstances. For such borrowers, a flexible mortgage could prove attractive.

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