Contractor Remortgage Do’s and Don’ts

DO allocate sufficient time for market research

Our foremost advice is to initiate discussions with your mortgage adviser or broker at least six months prior to your intended remortgaging date. Timing is crucial, and applying for a new deal no later than three months in advance ensures access to competitive rates and safeguards against transitioning to a more expensive standard variable rate at the end of your mortgage term, particularly in a rising interest rate environment.

DON’T stick with your current lender solely for convenience

We know as a contractor it can be tempting to accept an offer to transfer to a new rate with your current lender, especially if you hit issues when obtaining the original mortgage.

The advantage of remortgaging lies in the potential to save money by reducing your interest rate and monthly payments. The mortgage market is highly competitive, and it is important to recognise that your current lender may not offer the most cost-effective option.

Unlike simply switching to a different mortgage rate within the same lender, remortgaging opens up opportunities with new lenders. For instance, if your income has increased since you initially arranged your mortgage five years ago, you may be eligible to borrow a higher amount.

Remortgaging also allows you to release capital for various purposes while securing a more competitive rate than what your current lender can offer. However, if your income has decreased since you first obtained your mortgage, it may be challenging to secure the necessary lending from a new lender. In such cases, switching to a new deal with your current lender may be the most suitable option.

DO explore different options to find the best fit

The optimal choice may not necessarily be the one that offers the lowest monthly payments, but rather the one that enables you to repay your mortgage more quickly, resulting in greater long-term savings. As a contractor you may have access to additional funds that culd be used to pay down the mortgage over and above you normal monthly payments.

While your current lender may present a reasonable retention product, such as a more favourable rate if you remain with them, the most attractive deals are often available when you switch lenders. If you require additional borrowing, it may be worth considering alternatives such as a further advance loan from your existing lender or a new second charge mortgage (i.e., a second mortgage on the same property) instead of remortgaging. It is advisable to carefully evaluate all available options before making a decision.

DON’T attempt to estimate your property’s value

While it may be tempting to speculate on the change in value of your home since its purchase, an accurate valuation is essential to determine the extent of your spending or savings potential with a new mortgage.

If your property has appreciated in value since you initially obtained your mortgage, remortgaging will likely result in a lower loan-to-value ratio. This reduces the risk for mortgage lenders and may lead to a decrease in interest rates, depending on the prevailing rate environment.

A correct valuation is also crucial if you intend to release equity. However, it is important to note that doing so will involve taking out a larger loan and incurring additional interest costs over time.

In some cases, it may be more cost-effective to secure a short-term bank loan for home improvements or other expenses.

DO prepare your paperwork in advance

The remortgaging process closely resembles that of obtaining a new mortgage. Consequently, there is a significant amount of paperwork involved. To expedite the process, it is advisable to gather all necessary documents, including identification, proof of address, proof of income, and bank statements, as well as undergo the same affordability assessments required for a new mortgage application.

Whilst contractor application are assessed on a case by case basis, it would be prudent to ensure you have access to the following documents:

• CV
• Current Contract
• 3 Months Umbrella Payslips – If Umbrella
• 3 Months Business Bank Statements – If Limited Company
• 3 Months Personal Bank Statements.

Keeping all your documentation in a secure and easily accessible location will facilitate the completion of forms when the time comes.

DON’T overlook associated fees

When looking at a remortgage as a contractor, it is important to consider the associated fees and assess whether they align with your overall financial objectives.

Some lenders may impose charges for terminating your contract prematurely if you are still within the fixed-term period. Typically, this charge is a percentage of the remaining time on your fixed contract. Additionally, there may be an exit fee to cover administrative costs.

Your new lender will also levy set-up fees, which are similar to those incurred when obtaining a new mortgage. Remortgaging your property also entails legal work, which typically takes 2-3 weeks. While most lenders offer a free legal service, it may be time-consuming. Some lenders provide a cash-back service, where they pay the borrower a sum of money (typically £250) to contribute towards engaging their own solicitor, who may work more efficiently.

And remember… One of the most important things to bear in mind is to approach the remortgaging process with an open mind. Many individuals assume that remortgaging simply involves selecting a new interest rate, but this is not the case. Seeking advice from a contractor specialist mortgage broker can prove invaluable. Remortgaging offers an opportunity to restructure your finances and potentially achieve significant short-term or long-term savings.