Money Management Tristan on 18 Jan 2009 12:26 am
How Long Does It Take To Remortgage?
This is a good question - it should be a fairly straightforward answer, however in the current financial climate, the answer will depend on a number of important questions:
- Do you have adequate equity?
- Do you have adequate income?
- Is your credit rating acceptable?
- Will a remortgage actually save any money?
Let’s take a look at each of these questions.
Do you have adequate equity?
With the property market having already fallen by 16.2% according to this post, and with predictions of more falls to come this year, it is wrong to assume that your property is automatically worth more than your mortgage. Clearly, if you have a tiny mortgage compared to the value of your home, then this will not be an issue, but for those that bought a property recently with a fairly small deposit, chances are you are now in negative equity.
Do you have adequate income?
Gone are the days when lenders would lend four to five times your income. Income multiples have been reduced by most lenders. This mean that if you took out your mortgage a few years ago on, for example, four times income multiple, and your income has not altered significantly whilst simultaneously you haven’t made much of a dent in the size of your mortgage, you may well find that lenders will not consider you on the grounds that you cannot afford the mortgage.
From what I read, the self-certified market is suffering, which means if you have trouble proving your entire income, the lender may only take into account the portion of it that can be proved.
Is your credit rating acceptable?
Before the credit crunch, it was quite easy to find lenders willing to lend to people who had numerous County Court Judgements, defaults, arrears and even a bankruptcy (as long as they were discharged for three years). However, the way the market has changed means that it is now nowhere near as easy to obtain finance if you have not taken care of your credit rating. It may be that you will have to pay a much higher rate of interest, or simply not be able to obtain finance at all.
Will a remortgage actually save any money?
With the Bank of England base rate dropping again last week, there may be a huge number of borrowers who are now paying far less interest than they could ever hope to pay on a new mortgage if they switched. This is because new mortgages are being offered on interest rates that are typically 2% - 2.5% above the base rate, while if you are currently on a tracker or variable set at 1.5% - 1.75% above base rate (as many revert to after an initial discount period), it would be more expensive in terms of interest repayments - never mind the fees - to switch lender.
So if you have adequate equity, sufficient income, good credit and can find a deal that is better than your current variable rate or tracker, it should take you between two to three months to remortgage, however, I doubt there are many people that would be better served by remortgaging right now, better to wait a while and see if the base rate gets any lower (as I predicted here) than rush into things, this is going to be a long recession, so what’s the rush?
