When you take out a mortgage to buy your home, you typically take a deal that is to be paid off over the next 25-30 years. That doesn’t mean, however, that you have to stick with that original deal or lender for the whole of that term. In fact, it often makes sense to move your mortgage borrowing around onto different deals, or different lenders to take advantage of deals that might be available. Transferring your mortgage borrowing without moving house is known as remortgaging.
You might choose to remortgage with your existing lender if they can offer you a better deal (usually referred to as a ‘product transfer’), or you can move your borrowing and remortgage with a different lender altogether.
Why switch to a new mortgage deal?
There are a few reasons why you might consider remortgaging and switching to a new mortgage deal. One of the most common reasons is to secure cheaper monthly payments. Perhaps your current deal is coming to an end of its initial fixed or discounted rate and under the terms of the mortgage, you will be moved onto the lender’s standard variable interest rate (SVR).
Each individual lender will set its own SVR, which is generally an average of the market rates being offered elsewhere. Whilst they are usually a competitive rate, they are not necessarily the cheapest or best deal available. It’s a bit like renewing your car insurance each year – the standard deal offered by your current insurer at renewal may be similar to last year’s premium but could be beaten by other insurers willing to offer discounted deals to win your business. Just like renewing your insurance, it usually pays to regularly check the mortgage market to see what deals other providers will offer you.
You might find that you are experiencing a few restrictions on your current deal that you’d like to move away from. For example, some lenders will place limits on you making lump sum reductions or increased monthly repayments to your mortgage. If you’ve recently been given a pay rise or have inherited some money, you might want to use that extra cash to help pay off your mortgage quicker. Doing so could potentially save you thousands in interest over the rest of your mortgage term. If your mortgage deal isn’t working in the way that you need it to, it may be time to switch.
You may also find that you are now eligible for a more competitive mortgage offer based on a lower loan-to-value (LTV). Your LTV is the percentage of mortgage borrowing you have against the value of your property. If the value of your property has gone up since you purchased your home, combined with you having paid off some of your mortgage, then your LTV will be lower. This often gives you access to cheaper mortgage deals, and remortgaging allows you to take advantage of this.
One thing to remember when considering switching deals is that there will usually be one-off costs that you have to pay in order to arrange the transfer. You may incur an early repayment charge from your current lender if, for example, you are in a fixed or discounted rate deal that hasn’t yet expired. You may also need to pay valuation costs and legal fees to your new lender to set up the new facility. It’s important to weigh up the potential saving on a new deal against the cost of leaving your current deal before you make any decisions.
Should I stick to the same lender?
A ‘product transfer’ is usually more straightforward than switching to a new lender. You will have an established track record with your current lender, who will have most of your details to hand from your original application, so the process should be simpler. A straightforward swap of mortgage products and could, in theory, be processed in 30 minutes, as opposed to the typical 4-6 weeks when remortgaging with a new lender.
When staying with your current lender, there are usually fewer fees to pay as you should be able to avoid most of the legal and valuation costs incurred when setting up a new mortgage deal. Your current lender may well do a free internal index-linked valuation of your property to give an approximate current value of your home. Alternatively, they may instruct a full professional valuation from a suitably qualified surveyor, which you generally have to pay for. Depending on the outcome of this new valuation, you will be eligible for one of the lender’s range of mortgage products. If the equity built up in your property has improved a lot since your original application, then this might include deals not previously available to you.
Sticking to the same lender might be a good idea if some of your circumstances have changed since taking out your last mortgage. Having an existing relationship and track record with your current lender could work in your favour if, for example, you’ve become self-employed, changed your job and are now paid differently, or earn slightly less money than before. Perhaps you now have children and you or your partner only work part-time hours. You won’t need to go through any other application or affordability checks with your current lender, as long as you have kept up to date with your mortgage they will offer you new mortgage products to swap onto.
You should, however, make sure that the lender is aware of any changes in your personal circumstances so that they can make this assessment with all of the information available. If you withhold important information that might affect your application, then you might invalidate any mortgage offer made to you.
There may however be some disadvantages to sticking with the same lender, the biggest being that you will be restricted to the deals that the lender currently has available at the time of your application. We’d always recommend at least shopping around to see what else is out there.
Your current lender will probably try to encourage you to stay with them by making a mortgage transfer seem the easiest and cheapest option and this could leave you feeling a little confused when weighing up your options. Remember, however, that they probably won’t offer any financial incentives to keep you, such as cashback, a free valuation, or free legal fees, which a new lender might.
Should I move to a new lender?
Many people swap their mortgage over to different lenders at some point during the years of their homeownership in order to secure what they feel is a better deal. Regularly searching the market gives them the best chance of finding the right type of deal to suit their circumstances, particularly if these have changed.
Perhaps you are after a fixed rate to provide certainty of repayment costs, or perhaps the option to overpay when you need to might be important to you. Remember, your current lender’s deals are only a tiny fraction of the overall mortgage market. Switching to a new lender may help you access a better deal, saving you money and offering facilities which suit your circumstances better.
It’s also a good opportunity to have your home valued. Yes, you may need to pay a fee for the valuation process but it’s generally good to know how much your home is worth. You might find that you now have a better LTV ratio than the last time your home was valued, and generally speaking, the lower the percentage LTV, the better the mortgage rates that you’ll have access to.
Moving to a new lender is much more time consuming than sticking with an existing provider and will require a lot more form filling and documentation, such as proof of earnings, bank statements, ID, etc. You are effectively applying for a completely new mortgage and beginning the remortgaging process from scratch. A new lender will have to carry out all of their usual affordability checks and assess your financial situation before making an offer. The whole process may take several weeks and could incur some up-front fees including potential exit fees from your current lender, as well as valuation costs and legal expenses – all of which you will need to account for.
Should I switch to a new mortgage deal?
Whether or not you make the switch will largely depend on whether the numbers add up for you. This is something that we at Mortgage Light will be able to help you get to the bottom of. We’ll sit down with you and have a chat to find out about your circumstances and what’s important for you in your next mortgage product. We will then shop around and show you the deals that we think will work for you. We have access to the whole of the financial market and can access deals that a consumer might not ordinarily see, expanding your horizons when searching for the right product.
Using Mortgage Light means you’ll save yourself a lot of time and energy, and avoid the confusion and headaches that switching deals might bring. We’re always on hand to offer independent advice and are completely unbiased. Our focus is on what’s going to work best for you and no one else. If you are in the market for a new mortgage deal, get in touch with our team of experts for impartial advice and guidance.