Coins and Houses

Contractor remortgage: why it may pay to review your mortgage 

We all know the scenario. We take out a package – be that for TV, insurance, banking or, in this case, mortgages - that package expires and we stick with the easy option of carrying on with the same provider.

Why? Because we don’t want the hassle of shopping around, switching and (potentially), losing service while we move across.

But in recent years, with competition across all markets becoming more and more fierce, it really pays to search around for the best deal available to you.

The world of the contractor mortgage is no different. If you are still with the same provider, even though your initial rate has expired and you are on standard variable rate, you’re likely to be paying over the odds in monthly interest.

What is the standard variable rate?

The standard variable rate, or SVR, is the rate that your mortgage reverts to once your initial rate has expired. According to the Council of Mortgage Lenders (CML), more than 23% of existing UK homeowners are on the lenders’ SVR – that’s almost a quarter.

Even more staggering, according to research carried out in November 2016 by Which?, the average SVR was 4.90%, and not much has happened since then to change this dramatically.

Compare this rate to an example of a competitive five-year fixed remortgage deal from a high street lender, at 2.14%*, and you don’t have to be a genius to see that there are significant savings to be made by remortgaging your property. With a 2.14% deal, you would have an average monthly saving of £441.61 per month, or £26,496.60 over the five-year fixed term (savings based on a loan size of £301,387).

So why don’t contractors remortgage?

Many contractors are put off remortaging because they don’t feel the savings will be worthwhile. But as we see from our example above, this isn’t likely to be the case. Don’t compare your current monthly payment to rates that were available previously. In the last two years alone, rates have dropped dramatically .

Some contractors feel the savings to be made aren’t worth the hassle of looking for a new mortgage.

We’d suggest the process is pretty hassle-free. It may cost little or nothing, and generally takes less time than you’d think. For example, many lenders will pay for the survey and legal costs associated with switching in order to win your business. A good broker will do the leg work for you. You just need to sit back and let them get on with it.

Contractor remortgage – will this tie me in?

Being tied into yet another deal does deter contractors from remortgaging, particularly if they are thinking of moving on. But in fact, there are many penalty free mortgages that allow you to move away from your lender at any time. If you are already tied into a mortgage, yet to be converted to the standard variable rate, it is still worth investigating a remortgage – you may end up saving more than you would pay in penalties for switching.

For example, Nationwide have a contractor friendly remortgage Tracker rate** that carries no early repayment charges should you decide to move. Until your find your new dream home, you can save £449.03 every month until you move!

The best way forward is to seek advice early on, and keep in touch with your mortgage broker. At Contractor Mortgages Made Easy, we ensure our clients get proactive advice, as they are contacted by a dedicated mortgage consultant four months before their deal expires to ensure they never have to pay more interest than they need to

For help and advice with remortgaging your property, please get in touch with one of our team.

* A mortgage of £301,387 payable over 25 years, initially on a fixed rate of 2.14% for 5 years and then on a variable rate of 3.74% for the remaining 20 years would require 60 payments of £1,302.39 followed by 240 payments of £1,505.23. The total amount payable would be £439,528.35, made up of the loan amount plus interest. The overall cost for comparison is 3.19% APRC representative. With £999 lender’s arrangement added to the loan.

** A mortgage of £301,387 payable over 25 years, initially on a Bank of England base rate currently 0.25%+ 1.84% variable rate for 5 years at 3.74% for the remaining 20 years would require 60 payments of £1,294.97 followed by 240 payments of £1,503.65. The total amount payable would be £438,703.95, made up of the loan amount plus interest. The overall cost for comparison is 3.17% APRC representative. With £999 lender’s arrangement fee added to the loan.

Rates are correct as of 8th February 2017. Product availability is subject to change, please speak with your Mortgage Adviser regarding availability and eligibility. 

Media Contact: Sarah Middleton, Public Relations Manager

Tel: 01489 555 080

Email: media@contractormortgagesuk.com