As a property owner, managing your finances effectively is key to maximising your returns, and a significant aspect of this is ensuring your buy-to-let mortgage deal remains competitive. Landlords, property investors and homeowners alike understand that when a fixed-rate mortgage term ends, switching to a new mortgage provider can deliver significant savings and a better mortgage deal overall than staying on a variable rate deal. However, those who are seeking to take more control over their mortgage rate and get the best possible deal may consider remortgaging before the end of their existing mortgage term.

This must be carefully considered. While it is possible to remortgage early, leaving your current mortgage deal before the agreed term ends often comes with early repayment charges (ERCs) that can represent significant costs. There will also be a legal process involved, as a different lender will require various conveyancing steps to be taken before your deal is finalised. As such, the decision to proceed requires a careful calculation to ensure the financial benefits outweigh the penalties.
Here, the expert residential real estate solicitors at JMW explain the reasons why people might remortgage early, how the costs involved can affect the decision and the legal process for securing a new mortgage for a home or buy-to-let property.

Why Remortgage Early on a Fixed Rate Mortgage?

There are several strategic reasons why a landlord might choose to break away from their current mortgage deal early. If market interest rates have dropped significantly since you took out your fixed-rate mortgage, switching to a new deal could lower your monthly repayments and save you a substantial amount over the long term, even if you face early repayment charges for switching. You may also be in a position to secure more favourable mortgage terms if you have more financial stability by the time you decide to remortgage.

If your property value has increased, you may have built up significant equity. An early remortgage can allow you to release some of this capital to fund the deposit for another investment property, carry out renovations or for other business purposes.

Some landlords remortgage to consolidate other, more expensive debts into a single, more manageable loan, although this requires careful consideration due to the level of risk involved. In some cases, homeowners decide to rent out their former home and wish to switch from a residential mortgage to a buy-to-let product that will better meet their needs as landlords.

Remortgaging can also open up your options in terms of the products you can choose. The main types of buy-to-let mortgages are:

• Capital repayment: your monthly repayments cover both interest and capital, meaning you will own the property outright at the end of the term.
• Interest-only: your monthly payments only cover the interest, which keeps costs down. Because your interest-only payments do not cover the capital, you must repay this at the end of the term, usually by selling the property.
• Fixed-rate mortgage: your interest rate is fixed for a set period (usually two, three or five years) to provide certainty on your monthly repayments.
• Tracker mortgage: the interest rate tracks the Bank of England base rate, which means your payments can go up or down.

Whether you are looking to release equity or aim to consolidate debt, it is important to consider whether remortgaging early is the right option, or whether you could avoid some early repayment fees by waiting. 

How Can Early Repayment Charges Affect Early Remortgaging?

The most significant financial obstacle when you remortgage early is the early repayment charge. This is a penalty fee charged by your current lender for paying off your remaining mortgage balance during the initial fixed-term period.

Early repayment charges are typically calculated as a percentage of the outstanding loan balance. The percentage ranges from 1% to 5% of the outstanding balance and may be tiered so that the percentage decreases for each year that passes in your mortgage deal. This means that the earlier you remortgage, the more your remaining balance will be and the higher the percentage your ERCs may be, which can mean that there are significant fees associated with remortgaging early.

It is crucial to check the specific mortgage terms of your existing mortgage deal to understand the exact early repayment fees you would face. Further, these are not the only kind of fees involved in switching your mortgage early, and it is important to calculate everything carefully to maximise your returns. 

• Arrangement fees will be charged by the new lender for setting up the mortgage. This can be a fixed fee or a percentage of the loan and can range from a few hundred to several thousand pounds.
• The new lender will need to value your property to confirm its current market value and rental potential, which will involve paying valuation fees. Some remortgage deals include a free valuation that can offset this cost.
• Legal fees will pay for a solicitor to handle the legal work and conveyancing. JMW will discuss the likely legal costs involved from the start of the process, which can help you to budget properly and determine whether remortgaging early will be cost effective for you.
• A mortgage broker may charge a broker fee for their service, but their expertise in the market and finding the best remortgage options can often save you more money in the long run.
• Your current lender will charge a smaller administrative fee, known as an exit fee or a deeds release fee, for closing your account, unless your new mortgage is with the same lender.

Only by adding up all these potential fees and comparing them to the savings from a lower interest rate can you decide if early remortgaging is the right move for your financial circumstances. These costs can negate the potential savings of switching to a new mortgage deal in the wrong circumstances, but legal advice can help you to determine the best approach.

How Early Can You Remortgage?

Early repayment charges can cause financial difficulties, and it is important to time your remortgage properly. While you can technically apply for a remortgage at any point, there are several possible limitations and considerations you should make to maximise your return on your investment. For example, many buy-to-let lenders impose a "six-month rule", meaning that they will not allow you to remortgage a property until you have owned it for at least six months.

In certain situations, it is possible to remortgage within six months of purchase. These are known as "day one remortgages" and are typically offered by specialist lenders. This option is often used by investors who have purchased a property with a bridging loan to renovate it and need to switch to a standard mortgage product quickly, rather than by those looking for a better deal.

You can often avoid ERCs if you plan your remortgage to complete just as your current deal expires. Most lenders issue a formal mortgage offer that is valid for three to six months. Therefore, you can start the application process around six months before your current mortgage deal ends. This allows you to lock in a new rate and transition smoothly before your existing deal expires and you move automatically to your lender's standard variable rate, which is usually much more expensive.

If you expect a change in your financial circumstances following the purchase of a buy-to-let property, it may be advisable to choose a property with a relatively short fixed term, which would put you in a position to remortgage earlier without incurring ERCs.

What Is the Legal Process for a Buy-to-Let Remortgage?

The remortgage process for a home or buy-to-let property involves several legal steps that you will need a solicitor to complete on your behalf. When you decide that it is time to remortgage, the process usually unfolds as follows:

• You apply for a new mortgage offer after comparing mortgage deals or working with a mortgage adviser to find the right product. The lender will assess your credit and may arrange a valuation of the property before providing an offer.
• You instruct a solicitor, who will need certain documents from you to start work. At JMW, our solicitors will need you to provide:
• proof of identity (ID checks / anti-money laundering checks)
• proof of address
• evidence of the source of funds (if you are paying anything in)
• details of the property and your mortgage

If you are switching lenders, the solicitor will also confirm they can act for you under the lender’s rules.

• We obtain the title documents from HM Land Registry, confirm the legal owner(s), and review details such as:
• any existing mortgages registered against the title
• restrictions (for example, if consent is needed from a management company)
• covenants or rights affecting the property
• lease details if the property is a leasehold (including the leasehold term, ground rent and any service charge obligations)

This is part of making sure the lender will get valid security over the property.

• We request a redemption statement from your current lender, which confirms the mortgage total, the outstanding mortgage balance and any ERCs that will apply. This is essential because your current mortgage must be repaid in full before the new mortgage can be registered. The redemption statement will provide the total amount required to pay the mortgage off in full on a specific date to make this as straightforward as possible.
• Your solicitor carries out any checks and searches that are required by the lender. While these depend on the lender, they will typically involve:
• Land Registry searches
• A bankruptcy search, which may be needed even if you have no insolvency history
• Local authority searches

Many remortgages do not require full local searches, especially when the lender accepts search indemnity insurance instead. However, lenders may still request certain searches if there are specific risk factors in the title, such as the location or property type, or if their internal policy requires it.

1. The lender issues your mortgage offer. Your solicitor will then review it and confirm the loan amount, term, interest rate and any special conditions that determine what must happen before funds can be released. If the offer includes a requirement for buildings insurance or occupiers’ consent forms, or anything in the offer conflicts with the title position (or property circumstances), we will resolve this before completion.
2. You sign the contract, including a mortgage deed and a completion statement or authority confirming you agree to the funds being used to redeem the existing mortgage. It will be our role to exchange the funds when your remortgage is completed.
3. The new mortgage replaces the old one on completion day, which is the point at which the remortgage is finalised. JMW will receive mortgage funds from the new lender, then repay your existing lender using the redemption figure, and send any surplus money to you (if you are releasing equity).

As the property owner, your role in the process is finished, but there are still tasks for your solicitor to complete. Once your old mortgage is repaid, your previous lender will arrange for its charge to be removed from the title. We will make the necessary registrations with HM Land Registry to reflect the new mortgage charge, and the removal of the old charge once confirmation is received.

It is vital to choose a solicitor that works quickly and prioritises communication. At JMW we know how to keep a remortgage moving forwards and minimise any stress or confusion.