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An application to remortgage is prompted by one of a number of reasons, including: 

• The current arrangement is approaching the end of its agreed term (the expiry of a fixed-rate period, for example);
• The borrower chooses to remortgage in order to secure improved mortgage terms (of flexibility or a better rate of interest); or 
• To release equity in a property that has been owned for some time and has a relatively low loan to value ratio.

According to a recent report by the BBC, during the next 12 months around one million mortgage borrowers will come to the end of the fixed rate mortgages agreed with their lenders. Mortgages on a fixed rate of interest have been popular amongst first-time buyers and have given them a period generally of between 2 and 5 years in which they have enjoyed the certainty of knowing just how much their monthly mortgage repayments will be.  

Despite a falling Bank of England base rate, however, at the beginning of 2008, mortgage rates remain high, funds for lending remain in short supply, and borrowers reaching the end of their fixed rate deals are faced with the prospect of considerably higher repayments. Those without a near-perfect credit history and those unable to increase the size of their own investment in the home by way of a bigger deposit are unlikely to secure a new mortgage at an attractively competitive rate and will have little option but to revert to their current lender’s standard variable interest rate. This will generally be higher than other rates of interest.   

Despite many press reports referring to a crisis in mortgage lending, there are still attractive mortgage deals available. Therefore, borrowers looking to switch mortgages in order to secure more suitable terms and conditions or a more favourable rate of interest can still exercise their choice to remortgage. However, given the current restriction on supply of mortgage funds, lenders can afford to be choosy and are restricting mortgages to safer risk clients with near-perfect credit histories.

Borrowers wanting to secure a better rate of interest through a remortgage should check whether their current lender is offering the best deal available. Then it will be possible to see whether other lenders could improve upon it. When comparing the alternatives, however, it is important to take into account the cost of terminating the current mortgage and of arranging the new mortgage.  

If the value of your property has increased significantly in relation to the outstanding mortgage (i.e. the loan to value ratio has reduced), a remortgage can be a way of releasing some of that equity. This could also provide a means of debt consolidation since the interest on a new mortgage will still be cheaper than higher-interest, shorter-term, unsecured borrowing. It is important to remember, however, that your home is at risk if you default on the repayments.   A remortgage is an option for borrowers: 

• Coming to the end of an agreed fixed-rate interest period of repayments;
• In search of improved mortgage conditions, in terms of flexibility or interest rate; 
• Wishing to release any accumulated equity in the increased value of their home.

This remortgages article has been written by Sarah Mattingley.

This article does not represent ‘financial advice’ as each individual's personal requirements will be unique to their own specific needs. If there is something in this article that you wish to rely on then please check those details with the person with whom you arrange a financial product or service.

The views in this article represent those of the author and not those of Netbasic Limited.