Five things you should know before approaching a self-employed remortgage
- 06 Oct 2021
When you take a mortgage, you often fix your rate for a certain amount of time, generally 1-5 years is common. When that fix comes to an end it gives you an opportunity to review your current deal and discuss a new rate, raise additional funds or generally assess your goals with your mortgage. If you choose not to fix, you will normally revert to your lenders standard variable rate (SVR).
There are a few things you should know before approaching a self-employed remortgage however, like evidencing your income and the hurdles you might face through the process as a self-employed professional. There may be additional challenges also, if you have recently changed your payment mechanism, such as contracting to Umbrella PAYE.
CMME explains all that and more in this article.
Can I get a Remortgage While Self-Employed?
Generally self-employed professionals have had more challenges compared to a traditional PAYE when applying for a new mortgage and this is still the perception according to the CMME and IPSE research conducted in 2020.
Despite that you should be able to access the most competitive rates for your needs when it comes to your remortgage. Using a specialist broker can often help navigate and make sense of your current deal.
Reviewing your rate is a sensible first step to take when remortgaging; whether you ultimately take any further action, it may outline that you could be saving money.
What can it save you?
Breaking down your options (Provided for illustrative purposes only)
Say the offer you’re on begins with an Initial Rate fixed for the first 2 years: 0.87%
After these two years, you will automatically move onto the SVR: 3.59%
You don’t have to be a math’s prodigy to estimate, based on those two rates alone, that your monthly payments will be significantly higher on the second rate
The mortgage amount: £350,000
The loan length: 25 years in total
On your initial rate, your monthly repayments are: £1,298.56
On your lender’s standard variable rate your monthly repayments go up to £1,769.12
That’s an extra = £470.56 a month or £5,646.72 a year – this could be avoided by discussing a new deal on your mortgage. A fairly significant amount, which can also change depending on the value of your home.
Loan-to-Value & Why it Matters
With house prices rising at the fastest rate since 2004, your house might be worth a lot more than it was when you set your current mortgage deal. If that’s the case you may find you’re now in a lower Loan to Value (LTV) band, this means you could be eligible for much lower rates.
The Loan to Value ratio is a hugely important figure for homeowners to be aware of, put simply it’s the to do with the size of the loan relative to your property’s value. This means that if your house is worth more now than it was when you first purchased your home you might be eligible to lower your repayments straight out of the gate.
You can read about the potential for a UK housing bubble in the CMME recent article here.
A chance to review your financial goals
While looking for a new mortgage, it could be a perfect chance to look at raising additional funds for other important projects or life events. The Covid-19 pandemic has made us re-evaluate what we want from our homes, resulting in a surge of buyers battling for bigger properties with more outdoor space.
The additional value in your home may mean that when you’re reviewing your plan you want to take additional borrowing to fund a home improvement project, a wedding, new car or to relieve financial burden.
This should be done with careful consideration.
When is it Best to Consider Remortgage While Self-Employed?
There are some key times you might want to reconsider reviewing your mortgage rate:
It’s due for renewal & you’re about to move on to a Standard Variable Rate
When you can see the end of your current deal on the horizon, that’s the prime time to think about remortgage.
When your current rate comes to an end your lender will automatically swap you over to their Standard Variable Rate (SVR) which is more than likely going to be higher than the deal you were on previously.
It’s worth looking at the market because there may well be a better rate out there for you.
There’s Technically no ‘bad’ Time to Review Your Mortgage Deal
Many people let early exit fees stop them from getting the best deal available – whilst exit fees are something you should consider before changing deals, it is frequently the case that the associated savings with your new mortgage rate could be worth accounting for the early exit fees.
As it is likely to be one of your most significant outgoings it makes sense to check you’re not needlessly spending money on your current rate if you could potentially be on a better one.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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