Introduction
We helped our customer in Farnborough, Hampshire, remortgage their home to raise additional funds for home improvements while retaining flexibility over their mortgage interest rate.
Our customer wanted to borrow an additional £20,000 but was reluctant to commit to a fixed-rate mortgage. They preferred a tracker product that could benefit from future reductions in the Bank of England Base Rate, without early repayment charges if they decided to switch products later.
After researching the available options, we arranged a two-year tracker mortgage with Nationwide Building Society. The remortgage completed successfully, providing the additional borrowing required and the flexibility to review alternative mortgage products without an early repayment charge.
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The Scenario
Our customer was an existing homeowner looking to remortgage their property and raise capital for planned home improvements.
They were employed with a regular salary and wanted to release approximately £20,000 from the equity in their home.
The total mortgage required was approximately £355,000, representing around 85% of the property’s value.
The customer wanted a capital repayment mortgage over 23 years, with the term selected to align with their preferred retirement plans.
Unlike customers who prefer the certainty of a fixed interest rate, our customer was comfortable considering a variable-rate mortgage.
They believed interest rates might fall and wanted a product that would allow them to benefit if this happened.
However, they also wanted the option to move onto a fixed rate later without incurring early repayment charges.
This combination of additional borrowing, loan-to-value and product flexibility was central to the recommendation.
The Challenge
The sticking point was finding a lender willing to provide the additional borrowing at approximately 85% loan-to-value while offering a suitable tracker mortgage without early repayment charges.
Raising Additional Funds at 85% Loan-to-Value
Our customer needed a remortgage that would repay their existing mortgage and release further funds for home improvements.
With total borrowing approaching 85% of the property’s value, we needed to identify lenders offering suitable capital-raising criteria at that level.
The loan-to-value was important because lenders often have different mortgage products, borrowing limits and rates depending on how much is being borrowed against the property.
We also needed to ensure the additional borrowing was affordable based on the customer’s sole income and existing financial commitments.
Finding a Tracker Mortgage Without Early Repayment Charges
Our customer’s main preference was flexibility.
Many fixed-rate mortgages include early repayment charges during the initial product period. These can make it costly to repay or switch the mortgage before the deal ends.
Our customer did not want to be restricted in this way.
They preferred a tracker mortgage, where the interest rate can change in line with a reference rate, such as the Bank of England Base Rate.
This would allow them to benefit from reductions in the reference rate if they occurred.
However, tracker rates can also increase, which would result in higher mortgage payments.
The challenge was identifying a suitable product that combined this variable-rate structure with no early repayment charges.
Aligning the Mortgage with Retirement Plans
The customer also wanted the mortgage to be repaid before their preferred retirement age.
This meant considering the mortgage term alongside affordability.
A shorter repayment term generally increases monthly repayments, while a longer term can reduce them but increase the total interest paid.
We needed to establish a term that met the customer’s repayment objectives without extending borrowing beyond their preferred retirement plans.
What We Did
Researched Mortgage Options Across the Market
We began by reviewing the existing mortgage, the additional borrowing required and the customer’s preferences.
We then researched remortgage products across the market, focusing on lenders offering tracker mortgages with no early repayment charges.
Our comparison considered the available loan-to-value limits, product structures, arrangement costs and cashback features.
Rather than automatically recommending a fixed-rate product, we focused on the customer’s preference for a mortgage that could respond to changes in the Bank of England Base Rate.
Reviewed Affordability and Capital Raising
We assessed the customer’s employed income and existing financial commitments to establish whether the total borrowing was affordable.
We also reviewed the proposed home improvement expenditure and the amount of equity available in the property.
The supporting information included income evidence, bank statements, identification and details of the planned improvements.
This allowed us to assess the borrowing requirements alongside the lender’s capital-raising criteria.
Identified Nationwide’s Tracker Mortgage
Our research identified a two-year tracker product with Nationwide Building Society that met the customer’s main requirements.
The product allowed borrowing at the required loan-to-value and did not carry early repayment charges.
We also contacted the lender and a business development manager before proceeding to discuss the circumstances.
The absence of early repayment charges was a key consideration because our customer wanted the option to change mortgage products if their preferences or market conditions changed.
Structured the Mortgage Around the Customer’s Plans
We recommended a 23-year capital repayment term to align with the customer’s preferred retirement plans.
We also considered the product’s cashback incentive and the option to add the relevant product fee to the mortgage balance.
The recommendation was therefore based on more than the interest rate alone.
It considered the additional borrowing required, mortgage term, setup costs and the customer’s preference for flexibility.
We subsequently progressed the application through to completion.
The Solution
We arranged a residential remortgage with Nationwide Building Society.
The mortgage included:
- Total borrowing of approximately £355,000.
- Approximately £20,000 of additional funds for home improvements.
- Loan-to-value of around 85%.
- A two-year tracker product.
- No early repayment charges.
- A 23-year mortgage term.
- Capital and interest repayments.
- A cashback incentive and the option to add the product fee to the mortgage.
The selected mortgage allowed the customer to access the additional borrowing while retaining the flexibility to switch away from the tracker without an early repayment charge.
The tracker rate could decrease if its reference rate fell, but it could also increase if that rate rose.
Why This Solution Worked
Nationwide’s tracker product addressed the customer’s two main requirements: releasing additional funds and avoiding restrictions associated with early repayment charges.
The lender could accommodate the required capital raising at approximately 85% loan-to-value, subject to its affordability assessment.
The absence of early repayment charges meant our customer was not committed to remaining on the tracker for the full two-year product period.
If they later preferred the certainty of a fixed rate, they could review available remortgage or product-switching options without an early repayment charge on the existing tracker.
The 23-year repayment term also supported their objective of repaying the mortgage before their preferred retirement date.
The Result
Our customer successfully completed their remortgage with Nationwide and released approximately £20,000 for their planned home improvements.
They secured a two-year tracker mortgage without early repayment charges, providing flexibility to respond to changes in their circumstances or mortgage preferences.
The mortgage also retained a capital repayment structure over 23 years.
We arranged ongoing mortgage reviews to monitor interest rate movements and consider whether a different product might become more suitable.
The outcome met the customer’s original requirements: additional borrowing for home improvements, an appropriate mortgage term and the flexibility to move away from the tracker without an early repayment charge.
What This Case Shows
A fixed-rate mortgage is not always the most suitable option for every homeowner.
Some customers prefer predictable payments, while others place greater importance on the flexibility to respond to changes in interest rates.
A tracker mortgage without early repayment charges can provide that flexibility, although payments may rise as well as fall, and there is no guarantee that moving to another product will result in a lower rate.
This case demonstrates why mortgage recommendations should reflect the customer’s borrowing requirements, attitude towards interest rate changes and longer-term plans.
It also shows the importance of considering early repayment charges and product features alongside the interest rate when comparing remortgage options.
Need a Flexible Remortgage or Additional Borrowing?
If you are considering remortgaging to fund home improvements or want to understand the differences between fixed and tracker mortgages, Kerr & Watson can review your options.
We provide independent, whole-of-market remortgage advice, including mortgage advice in Farnborough and the surrounding areas.
Contact Kerr & Watson to discuss your mortgage requirements.
