Self Employed Remortgages

The pros and cons of product transfers

Your mortgage lender already knows a lot about you, so arranging a product transfer is straightforward.  If the terms of your mortgage aren't changing, and you simply want a better rate, they can offer several benefits:

• Processing times are quick. Usually just a week or two.
• There's minimal paperwork
• A property valuation isn't required
• You don't need to engage a solicitor or conveyancer
• The transfer can be arranged on the phone if necessary

However they also come with some downsides...

First, you may find yourself paying more for your mortgage than if you remortgage with another provider. Second, the abovementioned benefits only apply if you don't need to change the terms of the mortgage.

If you need to raise additional capital, adjust the mortgage duration, or amend the names of the people on the mortgage, you can still get a product transfer.  Just be aware there will be more checks and paperwork involved, and a new property valuation may be required.

Unless you're simply borrowing extra funds through the current lender, there may be legal costs, although with some deals, the mortgage provider will pay them.

Are there any pitfalls to be aware of when remortgaging?

Remortgaging can be a good option if your current deal is finishing and you want to:

• Save money on your monthly mortgage payments
• Avoid being moved on to the lender's expensive Standard Variable Rate (SVR)
• Raise extra funds for home improvements, or to finance a car etc
• Consolidate debts

Bear in mind, lenders assess remortgage applications based on the applicant's current circumstances. They'll look at:

• Credit history
• Evidence of income
• Outgoings, including ongoing commitments like school fees, car finance, credit card balances etc
• Employment status
• Personal circumstances. For example, if you've had any more children.

One scenario that can cause problems, is when the initial mortgage was taken out when you were employed but you're now self-employed. If you havn't built up enough self-employed income, or trading history, the new lender may not agree to the remortgage.

Check For Early Repayment Charges

If you switch mortgage providers before the end of the deal, most fixed or discounted mortgage deals penalise you through Early Repayment Charges (ERC).  This can potentially cost you thousands of pounds.

The ERC is designed to compensate the lender for the loss of business when you jump ship. Whilst not common, some providers even stipulate what's called an overhang period, where the ERC still applies even after the fixed rate or discount rate period has ended.

Some remortgage deals come with product arrangement fees. Typically these fees range between £500 and £2000, although they can be added to the loan if necessary.  Thankfully, competition is fierce in the mortgage market, and these days, many deals have no arrangement fee at all.

Fixed vs variable rate remortgages

With the Bank of England base rate rising rapidly since December 2021, mortgage rates are much higher than they were.

Clearly, when rates were incredibly low, fixing for a few years was in most cases, a no-brainer decision. Now the decision is more nuanced and discount and tracker mortgages are worth considering. But ultimately, the advice we provide depends on your circumstances and appetite for risk.

Discount and tracker mortgages are both variable rate products. Which means the interest rate you pay can fluctuate. Discounts are discounted to the lender's Standard Variable Rate (SVR), whilst tracker rates track the Bank of England base rate.

Speak to a self-employed mortgage advisor at SEMH if you need advice or would like a remortgage quote. We have access to thousands of mortgage products, including many from self-employed friendly niche lenders.

Not only that, we always source the most cost-effective deal for your circumstances, pound-for-pound, after accounting for any fees associated with the product.

Will I need a solicitor or conveyancer to remortgage?

If you're remortgaging with a new lender, yes.  Fortunately, some lenders don't charge to engage a conveyancing solicitor or licensed conveyancer to carry out the legal work. Others will charge, or allow you to instruct a solicitor, as long as they are on the lender's panel.

How much can a self-employed person borrow?

It very much depends on your circumstances. Some providers, regardless of your income will only lend a maximum of 4.5 x single or joint income if any of the applicants is self-employed.

Other lenders are prepared to lend at higher income multiples. With these providers, single applicants earning from around £75,000 p.a or joint applicants with a combined income of £100,000+ can potentially borrow between 5 and 6 times their earnings.

If you're a company director with at least 50% shareholding, it's possible to find lenders who will use net profit, plus directors remuneration (salary), to assess income for affordability, rather than dividends and salary.

Usually they'll average the total income over the past two- years accounts, but a small number of lenders will use the latest years figures, which can be beneficial if profits are on the rise.

One or two lenders will even use your pre-tax net profit instead of post tax.

To find out how to prove your business profits and personal income to lenders, see our documentation guide for self employed mortgages.

How long do you have to wait before remortgaging?

You usually need to own a property for 6 months before remortgaging it.  Strictly speaking, it's 6 months from when your details are added to the title deeds at the Land Registry.  

However, the Registry will often backdate your entry to the purchase completion date. In any event, some providers will consider lending before you're added to the title deeds.

Day One Remortgages

It's possible to remortgage without waiting the usual 6 months period, with a so-called 'Day One' remortgage.

This is just a catch-all name given to any borrower who wants to remortgage immediately upon purchase, or at least without waiting 6 months.  This market tends to be served by specialist lenders.

Day One remortgages are used for a variety of scenarios, including auction purchases, and inherited properties.

What's the maximum LTV for a self-employed remortgage?

The current maximum LTV for residential house purchases is 90%.  For flats, maisonettes, and other types of leasehold property, 85% LTV is typically the upper limit, though some lenders will only go as high as 75-80%.

What can I use additional borrowing for?

When you release equity in your property, you can usually use the extra cash however you want, including to:

• Make home improvements, including extensions
• Purchase a car
• Pay for a holiday
• To buy or invest in a business
• Settle a divorce agreement
• Use as a deposit to purchase another property
• Fund school fees

Nonetheless, lenders still need to know what you want the money for, because it will have a bearing on how much you can borrow.

For example, most banks and building societies will cap their maximum loan-to-value (LTV) at around 80% if you want to remortgage to consolidate personal debts. For most other uses, lenders are generally happy to lend at higher LTVs up to 90%.  

Bear in mind, mortgage companies are likely to view a home extension, that adds value, more favourably than a round-the-world trip. Some lenders may even require evidence the extra borrowing has been spent on it's declared purpose.

Can I remortgage to remove my spouse or partner from the mortgage?

Yes, although you can't simply remove an ex from the mortgage without their consent.  

But if you've split from your hubby or partner, remortgaging your home as part of a separation or divorce settlement is possible, provided you can pass the lender's affordability assessment on your own.

Just like with any mortgage application, your self-employment income, outgoings, credit history and personal circumstances will all be scrutinized.

The equity you have in your property also plays a large part in determining the rates available to you. Lenders offer the best self-employed remortgage deals to applicants borrowing 60% or less of their property value.

Can I get a self-employed remortgage with bad credit?

Yes, many lenders are willing to consider poor credit. High street banks and building societies tend to be more cautious than specialist lenders and often only lend to applicant's with mild adverse, such as low value defaults and CCJs.

The deal you get depends on not just the severity of adverse credit, but how long ago it occurred. But in the right circumstances, it's still possible to remortgage, even if you've been subject to an ex-bankruptcy, IVA or repossession.

How long will it take to remortgage my property?

Around 2 - 8 weeks is typical. Much depends on how busy the lender is when you apply. Completion times tend to be longer from May to August, the busiest time of year for property transactions.  Ask your advisor for guidance at the time of your application.

Getting a self employed remortgage quote

When you're ready to remortgage, a specialist advisor at SEMH can save you time, stress and potentially thousands of pounds.

We have access to a huge range of remortgage products from mainstream and niche lenders, giving you the best chance of securing the most advantageous deal for your circumstances. To get a fast, no-obligation quote, call 0117 205 0655 (Monday - Friday 9am - 5pm) or take our 90 second quiz here.