Ashley Pearson, Head of Intermediaries at Loughborough Building Society
Every January, the new year ushers in the chance for change, the opportunity to start afresh and set good intentions for the year ahead. For some, this may mean improving their exercise regime and their diet, while for others, it might involve moving house, changing jobs or getting their finances in order.
The last few years have proven to be extremely challenging for many UK households, with the cost of living crisis placing significant financial pressure on disposable incomes, causing some to run up debt, tap into savings or put their home improvement plans on hold as they wait for greater economy certainty.
However, as we begin 2024, the economic outlook does seem a little brighter and, as a result, the early months of the year may be the time for homeowners to consider their remortgaging options as they evaluate ways to manage monthly mortgage payments, start a home improvement project or pay off debt.
Aside from naturally coming to the end of their current deal, there are a number of reasons why a borrower may seek to remortgage with another lender, including for debt consolidation purposes, to capital raise or because of a change in their personal circumstances.
For example, those going through a divorce may find they need to remortgage and conduct a transfer of ownership during the settlement process in order to gain full ownership of a property. In this case, LTVs of up to 90% are offered by some lenders, providing borrowers with greater scope for achieving a clean break during a challenging and emotional time.
Most recently, easing inflation and a less volatile interest rate environment means now may be a good time for homeowners, who may have been holding off, to act as competition amongst lenders begins to heat up across the remortgage market.
Remortgaging can also prove to be a useful tool for raising capital as it allows homeowners to tap into any equity built up in their home by using this to consolidate and pay off any debt that may have accumulated or to carry out a home renovation project.
For example, Loughborough Building Society allows remortgages for home improvement purposes up to 95% LTV, provided details of any planned works at the higher LTV band are clearly outlined during the application process. For debt consolidation purposes, mortgages of up to 80% LTV are available, including for those people with a high debt to income ratio.
This means that someone earning £50,000 a year with a further £50,000 in unsecured debt may also qualify for a mortgage, provided there is proof that they are regularly servicing the debt. This can be done on an interest-only basis and on a term of up to 40 years.
Another example where remortgaging may prove a viable solution is for those Help to Buy clients who have taken out a five-year equity loan to get onto the property ladder and are now coming to the end of the interest free period in a higher interest environment.
Exploring their remortgaging options and raising capital to repay the loan and buy the property outright may make more financial sense in the current climate and mortgages of up to 90% LTV are available to help the borrower achieve their goals and take full ownership of the property.
Of course, brokers will always need to ensure that any fees or charges associated with leaving a mortgage early are factored into the advice process to ensure they are securing the best outcome for their clients. And, while remortgaging may not be a suitable solution for every client, the flexibility it offers means it should always be front of mind when advising clients throughout what could prove to be a busy year for this particular sector.