Remortgage vs Selling

Why Homeowners Consider Remortgaging vs Selling

Homeowners find themselves weighing up remortgaging against selling for a wide range of reasons. Understanding your motivation is the first step towards making the right decision.

Common reasons for considering a remortgage:

• Reducing monthly payments by securing a lower interest rate
• Releasing equity for home improvements, debt consolidation or other purposes
• Switching from an interest-only mortgage to a repayment deal
• Raising capital for a deposit on a second property or buy-to-let investment
• Managing a change in financial circumstances such as reduced income

Common reasons for considering selling:

• The property is no longer suitable for your needs, whether too large, too small, or in the wrong location
• You want to release all of your equity rather than just a portion
• You are struggling with mortgage payments and selling would clear the debt entirely
• Relationship breakdown means the property needs to be sold and proceeds divided
• You want to relocate to a different area for work, family or lifestyle reasons

In many cases, the decision is not purely financial. The emotional attachment to your home, the disruption of moving, the impact on children's schooling, and your proximity to family and friends all play a role. A remortgage allows you to stay in your home while adjusting your financial arrangements, whereas selling represents a complete change.

It is worth noting that these options are not always mutually exclusive. Some homeowners remortgage as a short-term solution while planning a sale in the medium term, or sell their current property and remortgage a new one to get the best overall deal.

The Financial Case for Remortgaging

Remortgaging can be a powerful financial tool that allows you to improve your situation without the upheaval and expense of selling your home.

Lower monthly payments: If you are on your lender's standard variable rate (SVR) or an uncompetitive deal, remortgaging to a new fixed or tracker rate can significantly reduce your monthly payments. The savings can be hundreds of pounds per month, which frees up cash for other priorities.

Releasing equity: If your property has increased in value since you bought it, remortgaging allows you to release some of that equity while continuing to live in the property. This can fund home improvements that add further value, consolidate higher-interest debts, or provide capital for investment or other purposes.

Lower overall costs: The costs of remortgaging are typically much lower than the costs of selling and buying. A remortgage might cost 500 to 2,000 pounds in total, including any valuation, legal and arrangement fees. Many lenders offer free legal work and valuations for remortgages, bringing costs down further.

Stability: You stay in your home, your children stay in their school, and you maintain your community connections. There is no disruption to your daily life, no packing, no chain to manage, and no risk of the sale falling through.

Tax efficiency: By remortgaging rather than selling, you avoid triggering any potential capital gains tax liability if the property is not your primary residence. For landlords or those with second homes, this can be a significant consideration.

However, remortgaging does have its limitations. You can only release equity up to the amount your lender will allow based on their maximum LTV ratio and your affordability. If you need to access all of your equity or if your mortgage is in arrears, selling may be the only viable option.

The Financial Case for Selling

Selling your property is a more dramatic step, but it can be the right financial decision in certain circumstances.

Full equity release: Selling allows you to access all of the equity in your property, not just a portion. If you own a 400,000-pound property with a 200,000-pound mortgage, selling would release approximately 200,000 pounds in equity, minus selling costs. A remortgage would typically only allow you to borrow up to 75% or 80% of the property value.

Debt clearance: If you are struggling with significant debts or mortgage arrears, selling the property and using the proceeds to clear all debts can provide a fresh start. This eliminates the stress of ongoing repayments and allows you to rebuild your finances.

Downsizing savings: If your property is larger or more expensive than you need, selling and buying something smaller can release substantial capital while reducing your ongoing housing costs. This can be particularly attractive for those approaching retirement.

Market timing: If your local property market is strong and you believe values may not continue to rise at the same rate, selling could allow you to lock in gains at a favourable time. However, timing the property market is notoriously difficult and should not be the primary driver of such a significant decision.

Costs of selling: Selling a property involves significant costs that should be carefully considered. Estate agent fees typically run at 1% to 3% of the sale price. Conveyancing costs are usually 1,000 to 2,000 pounds. You may need an Energy Performance Certificate. If you are buying a new property, stamp duty land tax on the purchase could cost thousands or tens of thousands of pounds depending on the price. Removal costs, renovation of the new property, and other moving expenses can easily add several thousand more.

On a 400,000-pound property, selling costs alone could be 10,000 to 20,000 pounds or more before you factor in the costs of purchasing your next home. These costs must be weighed against the financial benefits of selling.

Practical Considerations Beyond the Finances

Money is important, but the decision between remortgaging and selling involves many practical and emotional factors that can be just as significant.

Disruption and stress: Moving house is consistently rated as one of the most stressful life events. The process of selling, buying, packing, moving and settling into a new home can take months and involves significant physical and emotional effort. Remortgaging, by contrast, is largely a paperwork exercise that can be completed in four to eight weeks with minimal disruption to your daily life.

Property chains: If you are selling and buying simultaneously, you are part of a property chain that can collapse at any point. Chain breaks are frustrating, costly and can leave you back at square one. Remortgaging involves no chain and no risk of a third party causing your plans to fail.

Children and schools: If you have children in local schools, moving to a different area could mean changing schools, losing friendships and disrupting their education. This is often a decisive factor for families who choose to remortgage rather than sell.

Community and social connections: Your neighbourhood, friends, local amenities and daily routine all contribute to your quality of life. Selling and moving means leaving all of this behind, which can have a significant impact on your wellbeing, particularly if you have lived in the area for a long time.

Time in the market: The property market can be unpredictable. Selling in a slow market may mean accepting a lower price or waiting months for a buyer. If you need to resolve a financial issue quickly, a remortgage offers a more predictable timeline. Selling might take three to six months or longer in a difficult market.

Future flexibility: Remortgaging preserves your options. You keep the property and can sell later if circumstances change. Selling is a one-way decision; once the property is gone, you cannot get it back. If property values continue to rise in your area, you benefit from that growth by staying put.

When Remortgaging Is the Better Option

Remortgaging is typically the better choice when you want to stay in your home and your financial goals can be met by adjusting your mortgage terms or releasing a portion of your equity.

Specific scenarios where remortgaging makes more sense:

• You love your home and area - If you are happy with your property and location, there is no practical reason to move. Remortgage to get a better deal or release funds while staying put.
• You need a manageable amount of capital - If you need 20,000 to 50,000 pounds for home improvements or debt consolidation, a capital-raising remortgage is usually the most cost-effective way to access these funds.
• Your current mortgage deal is expiring - If your fixed rate is coming to an end, remortgaging to a new deal is almost always better than staying on the SVR. This is a standard remortgage decision rather than a sell-or-stay dilemma.
• You want to reduce payments - Switching to a lower rate through a remortgage can significantly reduce your monthly outgoings without the cost and disruption of selling.
• The property market is weak - In a slow or falling market, selling may not achieve a good price. Remortgaging allows you to ride out the downturn while keeping your home.

Remortgaging is not appropriate if you cannot afford the mortgage at all, if the property is in negative equity, or if you need to access more equity than a remortgage would allow. In these situations, selling might be the necessary step.

When Selling Is the Better Option

Selling is typically the better choice when your current property no longer meets your needs, when you need to release all of your equity, or when continuing with mortgage payments is unsustainable.

Specific scenarios where selling makes more sense:

• Your property no longer suits your needs - If your family has outgrown the space, or your children have left and the property is too large, selling and moving to a more suitable home makes practical sense.
• Relationship breakdown - If a relationship has ended and the property needs to be sold to divide assets, this is often the clearest and fairest resolution.
• Significant financial difficulty - If you are unable to meet mortgage payments and a remortgage does not resolve the affordability issue, selling before the situation worsens can protect your credit rating and prevent repossession.
• Relocation - If you need to move to a different part of the country for work, family or other reasons, selling is the logical step.
• Retirement planning - Selling a larger property and downsizing can release significant capital for retirement, reduce ongoing costs, and move you to a more manageable home for later life.

Before deciding to sell, consider whether a remortgage could address your needs. Sometimes a capital-raising remortgage for an extension or loft conversion is more cost-effective than selling and buying a larger property when you factor in all the transaction costs.

Whatever you decide, seek advice from both a mortgage adviser and a financial planner if possible. A mortgage adviser can tell you what remortgage options are available, while a financial planner can help you model the long-term impact of each decision on your overall financial position. The decision between remortgaging and selling is too important to make based on incomplete information.