No matter why you'd like to remortgage, it is essential to understand what the costs will be - including those fees which might not be apparent at first.
Revolution Brokers is an independent, whole-of-market broker and has created this guide to set out information on all the remortgaging costs you might encounter.
Is it Mandatory to Use a Solicitor For Remortgaging?
Not if you're remortgaging with the same lender, no - this is a transfer rather than a remortgage with a new provider.
If you switch providers, then yes you must have a solicitor or conveyancer to deal with the legal paperwork.
However, legal costs for a remortgage are usually lower than for a full new mortgage.
How do the Costs Compare for Remortgages with Free Legals, and Solicitors Fees?
Some lenders will offer a deal, including free legal work. In this scenario, the lender appoints a solicitor, or you can sometimes select your own if the lender allows this.
You should always be wary of anything free:
- Free legal teams may not offer services as good as paid solicitors.
- Unpaid conveyancing can take much longer.
- These firms can deal with a very high workload and not provide personal attention.
Can I Get Remortgage Cashback?
Another perk offered is cashback. This is instead of free legal work and is usually to a similar value.
If you have a remortgage lender who doesn't offer either of these options, you will need to pay the solicitor or conveyancer, who will manage the loan transfer. Your solicitor will also organise the repayment of the initial mortgage.
What are the Average Legal Fees for a Remortgage?
Fees change between lenders, and some may offer free legal work - this is usually the cheapest option, but the service levels can be significantly lacking. Your lender will usually choose the solicitor.
If you pay a conveyancer or solicitor directly, the average remortgage cost is around £300, usually paid through the lender.
Costs increase dependant on:
- Property value.
- Whether it is leasehold or freehold.
- If any additional work is required.
Will it Cost me more in the End if I Get Free Legal Work?
Possibly - if you need additional work, such as an equity transfer, you might need to pay for this as an extra service outside of the scope of the free legals.
In this scenario, you might end up paying significantly more without being able to choose your own solicitor.
If you are considering a remortgage with free legals, give the Revolution team a call, and we will run through the pros and cons with you.
What Other Fees Are Involved in Remortgaging?
As well as legal fees, and sometimes extra legal work, other charges include:
- Remortgage arrangement charges.
- Remortgage booking fees.
- Valuation costs.
- Early repayment penalties.
Remortgage Arrangement Charges
Lenders often charge an arrangement fee (like an admin charge) - and the rates will vary. Some lenders offer a fixed arrangement fee; others calculate this as a percentage of the remortgage, and others don't charge anything.
Usually, the difference between a fee-free remortgage and one without a deal will depend on the interest rates and value of lending you need.
Lower rate remortgage deals often carry higher arrangement fees, and you should remember that if you pay for the fees upfront, you won't be paying interest on that cost, which you will if it is rolled up into your remortgage.
Most arrangement fees are non-refundable.
Overall costs make a big difference; as a free service is usually not really free, but infers a less competitive rate elsewhere.
Revolution always recommends establishing the tipping point - this is where one remortgage option with a lower cost ends up becoming more expensive than another due to the comparison of fees and interest rates.
Two deals are on the table; both for a £150,000 remortgage over 25 years with a two-year fixed term:
- Deal one offers a 5% fixed rate interest with a £995 arrangement fee.
- Repayments are £600 per month.
- The total cost is £14,400, plus £995, so £15,395 over the two years.
- Deal two does not have an arrangement fee but offers 8% over the two years.
- Repayments are £630 per month.
- The total cost is £15,120 over the two years.
In this scenario, the deal with the higher interest rate is £275 cheaper.
As another illustration, two other deals are offered for a £500,000 remortgage, also with a two year fixed term and over 25 years:
- Deal one offers 5% fixed interest with a £995 arrangement fee.
- Repayments are £2,000 per month.
- The total cost is £48,995 over the two years.
- Deal two offers 9% fixed interest with no arrangement fee.
- Repayments are £2,095 per month.
- The total cost is £50,280 over the two years.
In this scenario, the deal with the lower interest rate and the arrangement fee is £1,285 cheaper.
Remortgage Booking Fees
Booking fees, charged by some lenders, are usually around £100 - £200.
This cost is a non-refundable, upfront payment.
If you would like to remortgage, the lender will need to have a new property valuation to verify how much the home is worth.
Most providers will have their own valuer or surveyor, and whether they include the cost in their fees or you need to pay for the valuation depends on the offer.
Should you be paying for the valuation, this can cost anywhere from £250 to £1,500 depending on how large the property is, and the size of the remortgage.
Early Repayment Penalties
A mortgage provider charges early repayment penalties if you switch providers before your initial deal period has ended.
It is always worth taking the time to check for an early repayment clause, as this can be high and make it less worthwhile remortgaging until the initial period has finished.
Most borrowers who pay standard variable rates won't have an early repayment clause, since they will be passed any initial fixed term agreement. However, some lenders have an exit fee written into their mortgage contract, which is usually between £50 and £200.
Can I Deduct Remortgage Fees from my Tax Return?
BTL Remortgage Taxes
Many property investors contact the Revolution team for advice about whether they can reclaim remortgage expenses from their tax returns.
Before this year, all remortgage fees, legal costs and lender fees were fully tax-deductible.
However, these costs are treated differently, with new rules from the 2020-2021 tax year. Remortgage costs are limited to a 20% tax relief. Expenses are considered a reduction in tax liability, rather than being used to offset rental income.
The below illustrates the changes and how they have been introduced over time:
BTL Tax Relief on Mortgaging Fees
Remember that finance costs cannot be used to reduce a capital gains liability if you sell an investment property, whether or not you claimed the finance fees against rental profits.
Commercial Buy to Let Remortgage Taxes
Companies who buy investment properties have different rules.
Landlords who run their business through an incorporated company won't pay self-assessment income tax, but instead pay corporation tax, which stands at 18% in 2020-21.
Remortgage lenders use a stress testing system to verify affordability, and the system is less stringent for companies than for private landlords.
Rental income must cover 125% of the mortgage payments when tested at 5.5% interest. Other lenders use the initial interest rate offered, plus 1.55%.
This compares to a minimum rental requirement of 145% for private landlords in a higher rate tax band. It is advisable to seek expert support if you are considering the pros and cons of running your rental business through a limited company.
When rents are paid to the company, you can pay yourself dividends from the profit. Up to £2,000 of dividends per year are tax-free, but the higher the dividend, the higher the tax paid.
You will also need to pay corporation tax on the property gains once sold, whereas a private landlord pays capital gains tax.
Is There Stamp Duty and Land Registry Charges for a Remortgage?
You will need to pay a fee of between £20 and £910 for the Land Registry to register your new mortgage. The cost depends on the value of the property.
If you need to transfer the legal title of the property as part of the remortgage, you'll also need to pay Stamp Duty Land Tax. This happens when you move in with a new partner or transfer ownership to a family member.
Where you are transferring equity and taking out a remortgage, you might have to pay SDLT if:
- You are transferring a proportion of the property to a new spouse following marriage or civil partnership.
- You are transferring property or land into or out of a business.
- You are purchasing a larger equity share than you owned under the previous joint ownership mortgage.
The following scenarios are exempt from paying SDLT:
- The property is jointly owned, and it is divided equally - e.g. splitting the land into two parcels.
- A share of land or property is being transferred by court order, usually as part of a divorce agreement.
- The equity transfer is a gift.
For more information about SDLT charges on remortgages, you can visit the HMRC website, or contact the Revolution Brokers team.
Do I Have to Pay Capital Gains Tax when Remortgaging?
No - if you are remortgaging but not changing who owns what proportion of the property, there is no capital gains tax to pay.
This charge is only incurred when you sell a property.
For more information about the fees and costs associated with remortgaging, contact the Revolution team on 0330 304 3040 or via email at firstname.lastname@example.org.