FTB - how does remortgaging work down the line?

ts21

As I'm just going through the process of looking at what I can afford, what sort of mortgage I would want etc. I'd like to understand a bit more about how it works with remortgaging when you get to the end of your fixed term.

My understanding is that you can continue on that same mortgage at whatever the standard rate is for that mortgage - and some are better than others, right?

If you want to remortgage to get onto another fixed rate, what is the process? And what's the cost, in terms of mortgage fees and valuations?

The reason I'm asking is that I'm looking at getting a 95% mortgage. By the time I get to the end of the fixed term I'd want to be able to remortgage with a lower LTV. Presumably that depends on both the amount that I've paid off to build up equity, and also the current value of the property. Do I then get a new valuation at that stage in the hope that the property has increased in value to add to my equity?
Partly I'm wondering if there's any value in getting a 2 year rather than 5 year term. I guess there's little chance of a property increasing in value in 2 years, but I guess you'd still build some equity in the payments you'd made, and with any additional savings etc. it's possible to have built enough equity for a 10% deposit so that might make a 2yr rate worthwhile?

K_S

@ts21

- at the end of the fixed term you usually have 3 options: let it lapse on to SVR (differs a bit from lender to lender), do a product transfer (staying with the same lender) which involves no credit-checks or affordability assessment unless you want to change borrowing or term, or remortgage to another lender. 

- for product transfers, the value is usually calculated (for free) using indexed valuation. 

- for remortgages, most products come with free valuations. 

- for both of the above options, product fees will depend on total cost of what is cheapest for your borrowing numbers

- generally speaking, borrowers at high-LTV may prefer to fix for 2-years planning to remortgage/switch to a lower LTV by the end of 2-years, either through price inflation, capital repayments or a combination of that. Some prefer to fix and forget for 5 years so they don't have to worry about it or about rate rises for a good few years. There's no right/wrong answer, depends on your circumstances and attitude 

ts21

Thanks, that's super helpful! It was mainly looking at the new rate from Skipton today - the 2 year rate is better, and actually their current standard rate is lower than that (as they include a discount).

Presumably, if you wanted to change the LTV after the 2 years they'd need you to have an in person valuation rather than a virtual one? But ideally you'd find a product with a free valuation anyway so the cost of that wouldn't be the issue, just the hope that the value comes in as you need.

K_S

@ts21
- Skipton calls it "MVR" and currently that's at 4.64%. https://www.skipton-intermediaries.co.uk/Products/Variable-Mortgage-Rates

- for a product transfer/switch (staying with the same lender), the valuation is automatic and depending on the outstanding mortgage, the LTV band is automatically calculated. If you disagree with the automated indexed valuation, you may be able to pay to have the lender instruct a physical valuation.

- for remortgages, you specify an estimated valuation and the new lender will instruct a new valuation to verify if that's acceptable to them.

FaceHead

After 2 years making the contractual payment you'll have gone from 95% LTV to under 90%, assuming no house price change, no overpayment, and a 25 year mortgage term.

Combined with overpayment and house price rises, there could even be a possibility you're looking at the 80% LTV, which will see a nice reduction in the interest rate offered. 

I'd suggest that you want to spend the minimum of time on a 95% LTV product. 

getmore4less

Higher LTV are currently at relatively higher rates.

As well as the LTV improving the rates may become more competitive.

The other risk is circumstances change so dependent on retention with same lender.

Always look at rentention rate history