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Recrutiment & Employment Confederation

Is now the best time for self-employed business owners to remortgage?

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Guest blog by CMME.

Interest rates are still low, but they are creeping up. Is now your last chance to get a good mortgage deal? We explore the options for self-employed homeowners.

The Bank of England recently pushed its rate up slightly again. That means mortgage rates are going to start increasing, as long as the rate doesn’t suddenly slump again. Yet it remains fairly low at 1%. Great mortgage deals are still out there, and remortgaging now for a lower deal could save you thousands of pounds in interest. But that isn’t to say that self-employed people should all start shopping around for a lower deal now. There is a lot to consider, from your income to how much you have left on your deal.

When remortgaging always makes sense

It is nearly always a good idea to remortgage when you’re coming to end of your mortgage deal. Fail to get a new deal ready in time and you could go onto your lender’s standard variable rate (SVR), which is typically very high.

If you’re self-employed, you should start the process up to six months before the end of your deal. You will need to prove your current income by showing your SA302s, which may need to be from the last two years. You might also be asked to provide a pipeline of upcoming work, so you might want to spend time getting jobs booked in before you speak to your lender. You can usually secure a new mortgage deal up to six months before the one you are on ends, which gives you an idea of the kind of timeline you should be looking at.

It's also worth considering putting down more money in cash when you remortgage – if you have it available in savings. This will reduce the debt (therefore the amount interest is payable on) and the term of your mortgage.

When remortgaging is difficult

If your mortgage isn’t ending soon – perhaps it is a year or two off – you might have to pay an Early Repayment Charge (ERC) to remortgage for a better deal. Sometimes, it is worth taking this hit if the ERC is less than the savings you would make.

ERCs vary widely. Most are between 2% to 5% of the outstanding balance. So, if you have £50,000 left on your mortgage with a 2% rate, you would pay a £1,000 ERC. If the ERC was 5%, then you’d have to pay £2,500. You may also have to pay other fees to leave your deal, like the deeds release fee, which you pay at the end of your mortgage. That’s why it’s important to do your sums to make sure the savings from a lower rate are lower than the ERC.

If you are self-employed, you should also time your remortgage for when you have more reliable income. It might be difficult to access better deals if your income is lower than usual or has been unstable for a few months.

When house prices affect your mortgage deal

Lenders take into consideration loan-to-value ratios when offering deals. This percentage illustrates the amount you’re borrowing relative to the value of your home. A low ratio means you’re less of a risk to lenders because you are not borrowing that much against the security (your home). Having a low loan-to-value ratio can be a big helping hand to self-employed people because you need to demonstrate that you pose a low borrowing risk.Even self-employed people can find that

Last year, house prices shot up in lots of areas, which means existing homeowners have found their loan-to-value ratios have reduced. If the same has happened for you, you might find that lenders can offer you much better deals this time around.

When it makes more sense to overpay on your mortgage

Rather than remortgaging, have you considered overpaying on your mortgage instead? By reducing the outstanding debt, you will reduce the amount the interest is payable on and bring you closer to paying off your mortgage all together. For self-employed people, overpaying on your mortgage can be a simple way to cash in on a busy few months’ of work – and the savings on interest are often better than the interest a bank would offer you for your savings.

To avoid paying an ERC for overpaying (which does happen), you need to stick within your deal’s limits. You’re usually allowed to overpay by about 10% of your outstanding balance but do check with your lender.

Alternatively, you could speak to your provider about reducing the term of your mortgage. They will likely want to see your current income and pipeline, but the savings could make this task well worth the effort.

Timing your remortgaging right

Now could be the right time to talk about your mortgage deal as rates continue to rise. Our partners CMME can help you get everything prepared well in advance, so that you remortgage at the ideal time. Speak to CMME today

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This is a guest blog contribution for the REC website. The views expressed by guest writers reflect the individual's personal opinions.

How can CMME help?

If you're thinking about your mortgage goals, now is the perfect time to talk to CMME. No matter what your mortgage plans are; CMME are here to help you get the mortgage you deserve and the financial protection you need.