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Day One Remortgaging Explained

Learn everything you need to know about day-one remortgages, how this type of financing works, and why a property owner might be interested in applying for a day-one remortgage product.

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

Almas Uddin2024-06-14
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Is Day One Remortgaging A Good Financing Strategy?

The business finance broker team often hears from clients who want to remortgage straight after completing their house purchase.

This remortgage product is called a 'Day One Remortgage', and we have created this guide to explain what this remortgage is, and when it can be beneficial.

What Are Day One Remortgages?

This type of remortgage is usually taken out as early as one day after your mortgage becomes finalized, and you are the new owner of a property.

Usually, a mainstream lender will place a minimum cap of around six months on a new mortgage, and sometimes up to a year. That means you cannot take out a remortgage with a high street provider within six to twelve months of completion.

The 'six-month rule' refers to a new policy imposed after the credit crash in 2008, with the idea being that homeowners need to be protected from the potential of negative equity.

In some cases, a day-one mortgage might make sense - and there are lots of reasons why clients are looking for a day-one remortgage.

Given the demand, several niche lenders do now offer this type of remortgage, which is provided within strict guidelines as set out by the Council of Mortgage Lenders (CML).

Fundamentals of Remortgaging

Understanding the basics of remortgaging can open doors to better mortgage rates and terms, making it a smart move for many homeowners in the UK. Keep reading to learn how this process works and how you might benefit from it.

Operational Mechanics of How Does Remortgage Work UK

To start the remortgaging process in the UK, homeowners apply with a new lender. This application can take anywhere from 4 to 8 weeks to complete. Lenders will consider your credit score and current financial situation before approving a remortgage.

They may offer an Agreement in Principle (AIP) first, which indicates potential loan approval without a full credit check.

Homeowners should also calculate their possible monthly payments using a mortgage calculator and understand any exit fees or early repayment charge and early repayment fee tied to leaving their current mortgage deals.

This step ensures you grasp the total cost of switching mortgages and early repayment charges and helps you make an informed decision about whether the remortgaging work is right for your financial future.

Advantages and Disadvantages

Exploring the advantages and disadvantages of remortgaging offers insight into why many homeowners decide to go this route at various stages of their mortgage life cycle. Let's examine these pros and cons through a simple table presentation.

This table clearly outlines the key advantages and disadvantages of remortgaging. By weighing these points carefully, homeowners can make informed decisions that align with their financial goals and circumstances.

Optimal Timing for Remortgaging

Finding the best time to remortgage your house in the UK can lead to significant savings.

Assessing Savings Opportunities

Exploring savings opportunities is a vital step in the remortgage process. Homeowners can save money by finding a new deal with better terms and rates.

  1. Compare current mortgage rates with new offers to identify potential savings.
  2. Use an Agreement in Principle (AiP) to see if the current lender will offer the needed amount without affecting your credit score.
  3. Examine fees associated with remortgaging to ensure savings outweigh these costs.
  4. Review your financial situation regularly to spot favorable times for remortgaging.
  5. Calculate potential interest savings over time by switching to a mortgage with lower rates.

Next, we discuss how life changes can influence your decision to remortgage.

Financial Circumstances and Changes

Financial situations and life events often shift, impacting your decision to remortgage a house in the UK. These changes can make your current mortgage less fitting or open up new savings opportunities.

  1. Job Changes: Landing a new job or losing one affects your income stability, which lenders consider crucial during the remortgage process.
  2. Income Fluctuation: A significant increase or decrease in your regular income prompts a reassessment of your mortgage needs.
  3. Family Growth: Adding family members might require more space, leading to consideration of a larger property and hence, a different mortgage.
  4. Credit Score Improvements: An improved credit score qualifies you for better remortgage deals with lower interest rates.
  5. Interest Rate Changes: Rising or falling interest rates in the UK market influence the cost-effectiveness of switching mortgages.
  6. Equity Changes: Building more equity in your home opens up better remortgage options, possibly with more favorable terms.
  7. Financial Goals Shift: Changing financial priorities, like wanting lower monthly payments or paying off the mortgage sooner, can necessitate a remortgage.
  8. Mortgage Term Ending: As the fixed-rate period on your current mortgage concludes, reviewing other options helps avoid higher variable rates.
  9. Desire for Stability: Seeking certainty with fixed monthly payments drives homeowners to lock in favorable rates through remortgage.
  10. Debt Consolidation Needs: Homeowners often consolidate debt into their mortgage to simplify finances and reduce overall interest paid.

Understanding these triggers helps you time your move smartly, ensuring that a decision to remortgage aligns with both market conditions and personal circumstances.

Conclusion

Remortgaging offers a fresh pathway for homeowners to optimize their financial situation or adjust to life's unexpected twists. By carefully considering the timing and assessing potential savings, individuals can make informed decisions about switching lenders.

Knowing the essentials about how remortgaging works and recognizing its pros and cons empowers homeowners to take control of their property financing with confidence. Taking steps such as checking credit scores and understanding associated costs ensures a smoother transition.

This process not only opens doors to potentially better rates but also aligns with personal financial growth.

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Scenarios When a Day One Remortgage is Beneficial

The following examples illustrate why some homeowners apply for a day-one remortgage:

  • They purchased a property quickly, via auction or to secure a property before another offer could be made. This purchase could have been completed with borrowed cash or at a less competitive rate, and a new mortgage is needed quickly to repay the borrowing.
  • The property has been received as an inheritance, and you want to remortgage it quickly to raise funds against your new home.
  • You have bought a property using your own cash, and now need a remortgage to cover the value paid.

When Can I Apply for a Day One Remortgage?

You can apply for this sort of mortgage any time within six months of purchasing a new property. After six months, you can usually find a better remortgage option with a lower interest rate.

If you think a day-one remortgage is the best option for you, give us a ring, and we'll run through the options available.

How Does a Day One Remortgage Work in Practise?

The process isn't vastly different from a normal remortgage; the most significant difference is that you need to prove that you own the newly acquired property.

Usually, a new property acquisition won't show at the Land Registry straight away, in which case you can request verification from your solicitor.

You can take out a day-one mortgage deal on a variety of bases:

  • Against residential or investment properties.
  • As interest-only, or on a repayment basis.

The LTV (Loan-to-value ratio) will change between lenders. Typically, you will find an LTV of up to 75-85%, although a specialist lender's standard variable rate can influence whether they can lend as much as 90-95% of the property value. In some circumstances, you can even secure a day-one remortgage at 100% of the property value as a better deal than your current deal.

What Interest Rates are Charged for a Day One Remortgage?

The best way to reduce your interest charges is to submit a strong application, with all the supporting information, to lenders whose criteria you meet.

Affordability is always important, as a lender needs to know you can afford the repayments before making an offer to lend.

Again, the rules change between lenders, but most will look at your annual income and multiply this to arrive at a maximum lending figure. The standard is a cap of 4.5 times your annual salary. Niche lenders can offer up to five times your income, with some even as high as six times, depending on the scenario.

What Factors Impact the Rates on a Day One Remortgage?

Lots of different factors will impact the rates you are offered:

  • Type of property - a property that is a listed building, or of non-standard construction (e.g. has a thatched roof) is higher risk, and therefore harder to remortgage. Contact the Revolution team for help with remortgaging an unusual property.
  • Credit history - if you have a bad credit record, then it is likely that you will need to use a broker to find a bad credit lender, and the rates offered will be higher than those for an applicant with a clean credit record.

Expert Support with Day One Remortgages

Day one remortgages are a specialist type of lending, and therefore it is vital to work with an experienced broker who understands the current mortgage deal market and can make independent recommendations.

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

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Frequently Asked
Questions

Remortgaging is when you get a new mortgage on your house to replace the old one, often to save money or borrow more.

In the UK, when you remortgage, you either switch your current mortgage to a new deal with your existing lender or move it to another lender entirely.

Yes, some lenders allow day-one remortgaging in the UK, letting homeowners potentially secure better rates right after purchasing their property.

People choose to remortgage for various reasons such as reducing monthly payments, borrowing more money against their home's value, or finding a better interest rate.

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The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.

We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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