Borrowers remortgaged less than ever before in 2012 but in the right circumstance it could be just right for property owners in the coming months. The latest British Bankers Association figures show bank approvals for remortgaging and other loans were 23% and 21% lower in 2012 than for 2011.
Remortgage approvals fell from 17,521 in December 2011 to 14,389 in December 2012.
When you include building societies too the figures are just as poor wit the latest Council of Mortgage Lenders data, published last week, showing a 26% drop in remortgage activity in October, compared to the same month in 2011. Those sat on SVRs are sitting pretty and with record low mortgage payments they are not even considering moving changing deals.
Why should I remortgage?
Despite the collapse of remortgaging based on interest rates there are still many reasons why borrowers should see remortgages as a useful tool.
One seems counter-intuitive. After years spent raising a deposit, months spent choosing a property and weeks spent arranging the mortgage the last thing people want to do is go back to their bank.
However, in certain situations day 1 remortgages could save you a significant amount of money.
If the property was bought at below market value such as a repossessed house or a bargain snapped up at auction then it could release significant amounts of money. For example, a property valued at £100,000 but bought for £80,000 with a £10,000 deposit would only require £70,000 worth of borrowing.
By remortgaging at £100,000 almost immediately borrowers could release an extra £20,000 in equity. It could lead to a cheaper mortgage rate and more spare cash that would instead by tied up in the property unused.
There are many reasons why properties could be sold at a discounted price whether its been bequeathed or just someone desperate for a sale. Day 1 remortgages are most important for buy-to-let investors who are can use the cash as deposits on properties and expand their portfolio.
Landlords looking to make money from property do not want money being used unproductively within a property and will want to make the most of it and quickly.
How do I get a day 1 remortgage?
A day 1 remortgage may sound great in theory then but there are many obstacles to overcome if you want to change deals immediately. There may be early redemption penalties, more mortgage and arrangement fees to pay and more questions from a new lender.
It is a tricky business and a mortgage broker is the best person to guide you through a process of speaking to valuers, solicitors and lenders. Many high street banks and specialist mortgage lenders are open to day 1 remortgages and understand the legitimate reasons people do them.
Plenty of lenders will see a property sold under market value as a safe bet to lend money against as it is likely to have a large deposit.
Is it worth it?
Day 1 remortgages have had a bad name in recent years as they have been used to launder money and defraud lenders.
Some high profile cases mean it is not as common as it once was and lenders are wary of suspicious cases. Any borrower should be wary of scams and only speak to reputable businesses on the Financial Services Authority register.
There are also costs associated with any remortgage which must be weighed against the benefits of releasing equity.
But if you have purchased a property below market value then it is worth considering changing your deal and accessing the cash tied up.
Last year may have been the worst year ever for remortgages with interest rates at such low levels but don’t write it off. It could help to release a lot of money sat idle in your property.