For many homeowners, the initial excitement of buying a home is eventually replaced by the practical reality of managing a mortgage. Whether your fixed-rate deal is coming to an end, you’re looking to fund home improvements, or you simply want to see if a better deal exists, remortgaging is a powerful financial tool.
But how does remortgaging work? While the concept is simple (replacing your existing mortgage with a new one), the process involves several moving parts, including financial assessments, valuations, and essential legal work.
In this guide, we break down everything you need to know about how remortgaging works, from the early research stages to the final Land Registry updates.
What is remortgaging?
At its simplest, remortgaging is the process of switching your current mortgage to a new deal, either with your existing lender (often called a ‘product transfer’) or, more commonly, with a new lender altogether.
How it differs from your first mortgage
When you bought your first home, the process was likely a whirlwind of residential conveyancing, surveys, and chain negotiations. Remortgaging is generally faster and less stressful because you already own the property. There is no seller to negotiate with, and you aren’t moving house.
However, from a legal perspective, a remortgage is still a significant transaction. You are essentially taking out a new loan to pay off the old one, and the new lender will require a residential conveyancer to ensure their legal claim to the property is correctly registered.
Why do homeowners remortgage?
Understanding why you are remortgaging will help dictate the type of deal you look for. The most common reasons include:
1. Securing a lower interest rate
Your Loan-to-Value (LTV) ratio is a key metric lenders use to assess risk. It represents the size of your mortgage as a percentage of your home’s total value. You move into a lower LTV bracket if property values in your area have risen and your equity has increased, or through capital repayments, as every monthly payment you’ve made has chipped away at the debt.
2. Capitalising on market shifts
Interest rates are in a constant state of flux. If the Bank of England base rate has decreased since you first signed your mortgage deed, the best deals on the market today likely look very different from the ones available a few years ago.
By remortgaging, you are essentially buying out your old, expensive debt with new, cheaper debt. It’s a financial reset that ensures your monthly outgoings reflect the current market rather than the economic climate of the past.
3. Escaping the Standard Variable Rate (SVR) tax
When a fixed-rate deal ends, most borrowers are automatically moved to their lender’s Standard Variable Rate (SVR). This is almost always significantly higher than a fixed-rate product.
Think of the SVR as a loyalty tax. By proactively remortgaging before you hit the SVR, you can maintain a lower rate and keep your monthly budget predictable.
However, it’s important to note that while a lower rate saves money, you need to factor in Early Repayment Charges (ERCs) from your current lender and the legal fees for the new mortgage. At Peter Ross, we can ensure the legal transition is seamless so you can start reaping those savings immediately.
4. Releasing equity
While your home is a place to live, it is also likely your most significant financial asset. Over time, as property prices rise and you pay down your mortgage, you build up equity.
Equity is simply the difference between what your home is worth today and what you still owe the lender. By remortgaging for a higher amount than your current balance, you can release this equity as a tax-free lump sum of cash. Homeowners use this capital to fund home improvements, consolidate high-interest debt, or gift a deposit to children or grandchildren to help them move onto the property ladder.
From a legal perspective, releasing equity requires a new mortgage deed which we can register with HM Land Registry, discharging the old lender charge to ensure it is removed from title deeds, and managing the secure surplus transfer.
5. Changing mortgage terms
Remortgaging allows you to rewrite the rules of your loan. Many homeowners historically took out Interest-Only mortgages to keep monthly costs at a minimum. However, this means the original loan amount never decreases. Many homeowners choose to remortgage to a repayment (capital and interest) mortgage to ensure that every monthly payment clears a portion of the debt. This can provide security of 100% home ownership in retirement.
Sometimes, the goal isn’t the rate, but the time. Homeowners who are looking to become debt-free sooner may want to shorten the term, or if circumstances change and you need to lower your monthly outgoings, some homeowners choose to extend the term, increasing the total interest paid over time.
If you plan to move house in the next few years, you might remortgage to find a deal that is portable, meaning you can carry your current interest rate and terms over to a new property. At Peter Ross, we can handle the transfer of equity.
When should you start the remortgaging process?
Timing is everything. Most experts recommend starting your research four to six months before your current deal expires.
Most mortgage offers are valid for three to six months. By securing a rate early, you can protect yourself against interest rate rises while your solicitor carries out the necessary conveyancing steps. If rates drop further before your deal ends, you can often switch to the better deal before completion.
How does remortgaging work? A step-by-step guide
Step 1: Check your current deal
Review your latest mortgage statement. Note your current interest rate, the remaining term, and specifically, any Early Repayment Charges (ERCs). If you leave your current deal too early, the exit fees might outweigh the savings of a new rate. Most lenders calculate ERCs as a percentage of your outstanding loan, often ranging from 1% to 5%, which can equate to thousands of pounds if triggered prematurely. It is often most cost-effective to instruct your solicitor to set a completion date that aligns exactly with the day your current fixed term expires, allowing you to sidestep these exit fees entirely.
Step 2: Establish your property value
Your LTV ratio is the key to getting the best rates. If your home has increased in value, you may have access to better deals. It is important to remember that while online estimates provide a helpful starting point, your new lender will likely instruct a formal valuation to determine the equity available for the new legal charge on your title deeds. A higher valuation not only unlocks lower interest rates but also shifts your LTV bracket, which your solicitor must accurately reflect when submitting the final Report on Title to your new lender.
Step 3: Financial preparation
Just like your first mortgage, the new lender will perform a credit check and an affordability assessment. Ensure your finances are in order and your credit score is healthy. Beyond the lender’s assessment, your solicitor has a legal duty to verify the source of wealth for any additional capital or equity being moved during the transaction to comply with strict Anti-Money Laundering (AML) regulations. Proactively gathering your last three to six months of bank statements and evidence of any gifted deposits will prevent administrative delays when your lawyer prepares the final Report on Title.
Step 4: Shop around or speak to a broker
You can go directly to a bank, but a mortgage broker can access intermediary-only deals. Once a broker identifies a potential deal, your solicitor will review the mortgage offer to ensure there are no restrictive conditions, such as unusual insurance requirements or title restrictions, that could delay completion. At Peter Ross, we can provide a clear breakdown of the disbursements, such as Land Registry fees, to ensure the long-term interest savings aren’t swallowed up by the upfront cost of the switch.
Step 5: The legal stage
Once you accept a mortgage offer, the legal work begins. Even though you aren’t moving, a solicitor is required to:
- Verify your identity
- Conduct title checks to ensure there are no issues with the property’s legal standing
- Liaise with the old lender to get a redemption statement
- Handle the transfer of funds
Step 6: Completion and Land Registry
On the day of completion, your solicitor receives the funds from the new lender, pays off the old lender, and ensures any remaining equity is sent to your bank account. Finally, they update the Land Registry to show the new lender’s interest in the property.
Why do I need a solicitor to remortgage?
The reason is that a mortgage is a legal contract secured against your property. A new lender is effectively buying the debt from the old one, and they need to ensure their investment is safe. If you have joint ownership of property, the solicitor ensures all parties are legally informed and consenting.
If you are remortgaging a new build property, the legal work can be slightly more complex due to developer agreements and warranty checks, making professional guidance even more vital.
When you switch lenders, the new bank requires a Certificate of Title from a qualified solicitor.
Your solicitor acts as the essential bridge of trust; we perform a robust investigation of the property’s legal standing, checking for any undisclosed charges, restrictive covenants, or easements that may have changed since your original purchase. By issuing a formal Report on Title, we provide the new lender with the legal guarantee they require to release the funds, ensuring your transition to a better rate is built on a secure legal foundation.
The switch itself is a precise legal manoeuvre involving the HM Land Registry.
Your solicitor manages the simultaneous discharge of your old lender’s mortgage and the registration of the new lender’s legal charge on your property’s title deeds. This ensures that the public record accurately reflects your new financial arrangements and, crucially, protects your equity by ensuring old debts are formally struck off the register the moment they are settled.
The real costs of remortgaging
It’s easy to get blinded by a low interest rate, but you must factor in the setup costs:
- Early Repayment Charges (ERC) can be 1% to 5% of your outstanding loan
- Arrangement/product fees are often around £999, though fee-free deals exist (usually with higher rates)
- Valuation fees, though some lenders offer these for free to entice new customers
- The legal fees involved for professional conveyancing work
- Land Registry fees and bank transfer fees
Common mistakes to avoid
- Ignoring the total cost, for example, a 3.5% rate with a £2,000 fee might be more expensive than a 3.8% rate with no fee over a two-year period.
- If you leave remortgaging too late and drop onto the SVR for even one month, it could cost you hundreds of pounds.
- Just because you can release equity doesn’t always mean you should. Remember that you are increasing your debt and the total interest paid over the life of the mortgage.
How Peter Ross can help
We have been a fixture of the North East legal community for over three decades. With offices in Whickham and Jarrow, our heritage is built on providing homeowners within the North East with a high level of expertise.
Whether you are a seasoned investor or you are remortgaging for the first time, our team, led by experienced solicitors and licensed conveyancers, focuses on making the legal side of property ownership as seamless as possible.
Ready to start your remortgage with a law firm that knows your neighbourhood? Contact our residential conveyancing team today for a transparent quote and the expert guidance you deserve.