When NOT to Remortgage

1. Your Outstanding Mortgage Balance is Low

Once your mortgage debt has fallen substantially, the benefit of saving money with a lower interest rate could be completely cancelled out by the fees and costs involved in the remortgage. Some lenders will not offer loans to borrowers if the debt is less than £25,000 or even up to £50,000, meaning it would not be financially beneficial to remortgage. 

2. You Are Currently on a Low-Rate Mortgage

If your current mortgage product is extremely competitive and there’s nothing on offer at present that can challenge it, don’t switch. Do be mindful though; circumstances can change swiftly in the financial world. Keep your eye on deals and rates as conditions change all the time. 

3. You Have Little Equity Built Up in Your Home

Equity is the difference between the current market value of your home minus the outstanding amount you owe on your mortgage. For example, if your home is worth £200,000 and you owe a debt of £125,000 on it, the equity you’ve built up is £75,000. The amount of equity on your home will fluctuate over the years – this is dependent on house prices and the payments you’ve made on your home. Should the value of your house fall, so will the equity in your home. 

There are also times when your home can slide into what is known as negative equity. This means that your home is worth less at present than when you bought it. 

Both of these scenarios can make it more challenging to obtain a remortgage. If you have low equity in your home and you’re looking to borrow more than 80% of the value of the property, lenders may see you as a high risk applicant. The result of this can mean higher interest rates and less favourable conditions, which could be less desirable than the rate you’re currently on. 

If you do find yourself needing to remortgage despite low equity, it’s worth getting in touch with one of our expert brokers. They’ll have knowledge of a wide selection of products and providers, making it more likely that you’ll find a competitive deal. 

4. You’re Going to Pay a Hefty ERCs (Early Repayment Charges)

Many mortgage products come with an early repayment charge penalty should you try to leave the mortgage before it comes to the end of the incentive period. An ERC could cost you substantially, possibly more than you would save by switching deals.

If this is the case, and you’re close to the end of the term on your current mortgage, it might be worth sourcing a new deal. It could also be worth checking your mortgage illustration documents to see at what point in the term of the mortgage the ERC penalty ends. Find out how to save on your mortgage (including ERCs).

5. You’ve Had Problems with Credit

Poor credit can impact the lender’s willingness to offer you a new product. If you’ve had issues with missed or late payments, have defaults on your credit file, a CCJ, or you on a debt management plan, you could be considered to have issues with credit. 

Banks may view you as a risk and likely to default on your payments if they see you have struggled with credit in the past. If they do offer you a new product, you could find that the rates and conditions are the same, or less preferential, as the current SVR you’re paying. If you consider that you’ll be paying fees and costs to switch mortgages, this may not be a suitable option. Read our Bad Credit Mortgage Guide for more information.

6. Your Finances Have Changed

There are many reasons your finances might have changed since you last took out a mortgage product. You may have reduced your hours, changed jobs, or become self-employed. All of this could affect you financially. Banks are legally required to investigate your outgoings. If they believe that you cannot afford to make the repayments on a mortgage, they won’t offer you a deal, or the remortgage rates will be greater. 

It could be advisable in these circumstances to remain with your current provider on the SVR. Or you could ask your existing lender for a product transfer to a different type of mortgage. Your current provider could offer you a reasonable alternative to what you’re paying now.