How much can I borrow?
How much you can borrow depends on your income, your credit history, and the criteria laid down by the lender. Just because you already have a mortgage doesn’t automatically qualify you for any mortgage on the market – each has their own guidelines and expectations. Your First Mortgage advisor can look at the whole mortgage market to pin down the best remortgaging deal for you if they think changing lender is the best course of action for you.
How much can I borrow?
Lenders used to base what you could borrow on a simple formula: take your income then multiple it by up to five times.
But this is no longer the case. Lenders are much more cautious since the financial crisis and are obliged to assess your ability to pay under rules brought in by the Financial Conduct Authority in 2014. This means they don’t just look at what you earn, but at what you pay out each month and how that might change in the future. There are three key areas that lenders look at when assessing what they can lend you:
- future possibilities
|Income||Lenders will look at your basic income plus any overtime or bonuses; pensions; investments; child maintenance or income from an ex-partner. |
|Outgoings||You’ll need to think about what you spend on basics like bills (utilities, broadband, phone, insurance); credit card payments; loan repayments; committed costs such as gym membership and childcare; living expenses (groceries, eating out, entertainment, holidays). |
|Future changes||Lenders will stress-test whether you could still afford to pay your mortgage if interest rates increased or you or your partner were no longer working (because you are ill, taking a career break or having a baby, for instance). |
When remortgaging, lenders will look at your circumstances just as they would for a first-time mortgage, assessing your risk based on your financial circumstances, credit history and the amount you’d like to borrow.
If you want to remortgage to get a better rate and you have already paid off a significant amount of your loan, you’ll be able to access better deals as your loan to value ratio has increased (the amount you owe has gone down, while the value of the property has stayed the same or gone up).
If you are remortgaging to release money from your mortgage to spend on something else, meaning you are asking to borrow a significant proportion of your home’s value, then your choices will be narrower.
Needless to say, the process for remortgaging is every bit as rigorous as getting your first mortgage, although you are likely to know more about the market and will have a First Mortgage advisor to take you through the process from start to finish.
Boosting your credit rating
Your credit score is used as part of a lender’s assessment when applying to remortgage. It’s worth keeping an eye on your credit records to make sure they are up to date and that you have a healthy report when it comes to remortgaging.
There is lots of advice online on how to boost a credit score. Everything from whether you vote to who you share a house with could have an impact on your report. Most guides suggest four key areas to look at:
- Maintain your report
Order a copy, check it for mistakes and correct any you find. Make sure you order from all three credit agencies (Equifax, Experian and Callcredit) as they may not have the same information on you.
- Boost your score
Take simple steps to ensure you boost your score such as register to vote, pay bills on time and avoid pay-day loans.
- Check who you’re linked to
Be aware of who you are financially linked to: if you have a joint account, mortgage or loan, or pay utility bills with someone, then their financial history will be linked to yours. If you have moved on, make sure all the credit agencies are aware of this so they can disassociate you.
- Time applications right
Think ahead and apply before a major life change (maternity leave, new job, career break), after a period of financial stability, and don’t make multiple applications for credit in the few months before you apply for a mortgage as these will leave footprints on your file.
If in doubt about your credit report and score and how it will affect your mortgage, talk to your First Mortgage advisor. If you want further advice or information have a look at the Credit report section and check out the sites below:
When remortgaging, there are some costs to consider. If you stay with your current lender these are likely to be in the form of greater interest payments as you move on to their Standard Variable Rate, or if you change to another lender you have to account for any exit fees and the cost of setting up a new deal, as summarised below.
Costs for leaving your current mortgage
Early repayment charge
Many mortgage deals have an early repayment charge for the initial incentive period. If you remortgage during this period, you could be looking at thousands of pounds to do so. Ask you advisor to check if you will be charged. If you don’t have an early repayment condition, you’re free to remortgage at any time. Otherwise, it pays to arrange to remortgage the next working day after your current mortgage deal ends.
If you have been offered a much better interest rate elsewhere, it is worth considering taking the hit on the early repayment charge, but only if the interest rate will mean you pay less overall. Early repayment charges usually range from 1% to 5% of your outstanding mortgage and can be paid as a lump sum or added to your mortgage and paid over time.
Sometimes called a deeds release fee or administration charge, this covers the cost for your current lender to forward on your title deeds to your solicitor. Some don’t charge, others charge up to £300.
Costs to set up a new mortgage
This covers the lender’s administration fees but can also sometimes be a part of the real cost of the mortgage deal. Some packages may have very attractive interest rates but a large initial fee to set up the deal. This will probably cost you up to £2,500 and you can add it to your mortgage and repay as you go – although this means you’ll pay interest on it too.
Sometimes called an application or reservation fee, this secures a fixed rate, tracker or discount deal. This is non-refundable and needs to be paid as soon as you submit an application. If you’ve gone through the application process with your advisor, you can rest assured that the mortgage deal will go through. This usually costs between £100 and £200.
Lenders need to know what your property is worth so that if things go wrong they can sell the property and get a decent price. Most remortgaging packages will give you the valuation for free, but if this is not the case, you can pay between £300 and £400. This is the only survey you need for remortgaging though, unlike buying a new property when you have to finance a homebuyer’s report or structural survey.
Most remortgaging packages cover the fees needed for a solicitor to remove your original lender from the property information. If you want to make any additional changes at the same time, this will cost you extra, but it’s useful admin to get out of the way.
James, FM advisor, Glasgow
Stay or go? It helps to be in the know…
“When you are thinking of remortgaging, we’ll compare the costs of staying with your current lender or moving to a new one and let you know what we find is the best option. Saves you having to do lots of maths and you could end up paying a lot less!”