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Switching mortgage provider

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Switching mortgages

There are a number of reasons why you might choose to switch your mortgage provider, although usually it’s to save money by changing to a deal with a more competitive interest rate. 

Transferring a mortgage to another lender is known as remortgaging. You can also switch mortgage deals and stay with the same lender – this is known as a product transfer. 

In this guide we’ll explain why you might consider changing mortgage providers (remortgaging), what the benefits are compared to taking out a new deal with your existing lender (product transfer), and how to go about getting the best deal if you decide that this is the right choice for you.

How to switch mortgage deals

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Can I switch mortgage providers?

It will depend on your current circumstances, as if you’re planning to switch the mortgage to a new lender, they will need to carry out the same affordability checks and credit searches as your current one did when you first took out the loan. 

This means that it could be trickier for people in certain situations, for example, if your financial circumstances or credit score have declined, or if your property has fallen into negative equity. 

Is a deposit required?

Sort of, although not necessarily a cash deposit like when you made the initial purchase. When you remortgage, the equity in your home serves as the deposit, so the amount of equity you have is a very important factor when switching mortgages. 

If you only have a small amount of equity, the remortgage rates offered won’t be as competitive, and you’re unlikely to be able to increase your borrowing. Although it's also possible to offer a cash deposit alongside this to improve your options. The greater your equity, the better the rates available to you will be.

What if I don’t qualify for a remortgage?

If you’re unable to change mortgage providers straight away due to a change in your circumstances, it can still be possible to change mortgage products with your existing lender. This is known as a product transfer, and the majority of lenders won’t carry out affordability or credit checks when you're switching mortgage deals to another of their own.

This means that so long as you’ve kept on top of your mortgage payments, you should be able to secure another deal with your existing lender. However, you can’t typically borrow more money with a product transfer.

Why might you switch mortgage providers?

There are few reasons why switching mortgage deals could be beneficial to you, but largely people do so to either get a better deal on interest charges, saving money on their repayments, to access more flexible terms, or to extend their borrowing further. 

More specifically, you might choose to switch mortgages when you find yourself in any of the below circumstances:

Your current fixed-rate deal is coming to an end

Fixed-rate mortgages tend to last between two to five years, although some lenders do offer longer fixed-rate periods. A fixed-rate means that your monthly payments will stay the same for the full length of the fixed term.

When that fixed-rate period ends, however, you will typically revert onto the lender’s standard variable rate (SVR). SVRs are usually higher than fixed-rate deals, so your mortgage repayments will most likely rise as a result of this. 

It’s a good idea to start researching new deals between three and six months before your current one ends. Some lenders will allow you to reserve an offer for up to six months in advance, meaning you can lock in a rate that’s available now and automatically transfer to the new rate when your existing one expires. 

This will both save you from potentially missing out on deals that may not be available in six months time, and help you to avoid early repayment charges (ERCs) that you would likely pay if you decided to switch mortgage lenders before your current deal ends.

You’re on a tracker rate and the Bank of England base rate rises

If you’re on a tracker deal, when the Bank of England (BofE) base rate rises, your rates will rise fairly quickly, as they are directly influenced by these fluctuations. Of course, they also fall if the BofE base rate falls, but in this case, you are likely better off staying put.

It’s a good idea to stay informed of interest rate rises and act quickly if you feel that your mortgage rates will be affected by rises. A broker will be able to help you determine exactly how this type of rise in interest would affect your mortgage repayments if you’re uncertain.

You want to overpay your mortgage or enjoy other flexible options

There are all sorts of flexible mortgage deals available these days that have terms that may be more beneficial to you than those you currently have. For example:

  • Overpaying your mortgage – if your existing mortgage doesn’t allow for this at all or charges you fees if you do overpay, you might want to consider switching mortgages to secure a deal that allows you to overpay any amount and/or without being penalised

  • Payment holidays – some mortgage terms allow you to take payment holidays every so often, which can be helpful when you are experiencing financial difficulties or perhaps have a big purchase planned. Changing mortgage providers may mean that you can find a deal with this type of flexible benefit

  • Offsetting your interestoffset mortgages can be a great way to save money on interest charges if you have substantial savings available. They let you use your savings balance to reduce the interest you are charged on your mortgage

You’re eligible for a better mortgage deal

The level of interest you pay is influenced by your loan to value (LTV), which is the current value of the property, compared to how much you owe on your mortgage. So, for example, if you borrow £80,000 on a £100,000 property your LTV is 80% to begin with. 

If the value of your home rises to £120,000, your LTV would fall to around 65%, meaning what you owe, although unchanged in terms of monetary value, is a lower percentage of the overall value of the property than when you took out the mortgage. As lower LTV borrowing is considered lower risk, lenders are then typically able to offer you a better rate of interest. 

Even if your home’s value doesn’t appreciate in value very quickly, as you repay the loan, the amount you owe compared to the value of the property reduces through repayment, meaning that once you’ve been repaying your mortgage for a while, so long as house prices haven’t fallen, you should also have lowered your LTV enough to be able to get a better interest rate. 

You want to borrow more

If you want to borrow more money for a large purchase, such as home improvements or a new car, you can often use the equity in your home to increase the size of your mortgage loan. This is known as remortgaging to release equity.

Equity simply means the chunk of the property that you already own, either through having repaid a certain amount or the value of your house rising, lowering your LTV, plus whatever you initially put down as a deposit

Changing mortgage providers in order to extend your borrowing is not always the cheapest way to borrow money, and depending on the amount you’re looking for, there could be more cost effective options.

It can be a really useful borrowing tool for some people, however, especially if you have a good amount of equity in your home. Lenders' terms vary and their accepted reasons for your borrowing can also change from one to the next, but some will consider a loan for any legal purpose. 

When to switch mortgage provider

It’s best to start looking around six months before your existing deal is due to end. The process of switching mortgages can take some time, so planning ahead will mean it can be completed before your current deal ends. This will prevent you from falling onto the lender's SVR (standard variable rate) of interest, which is typically higher.

“With interest rates on the rise, many borrowers are looking for the cheapest mortgage deal possible. However, it’s important to bear in mind that rates are changing quickly, so if you spend too long looking, you may find that rates have increased again by the time you’re ready to apply. It’s worth finding a reputable mortgage broker who can look at options from lots of different lenders and trust that they’ve found the best deal for you.”
Kirsty Lacey, Mortgage Expert at Mojo Mortgages

What fees are involved with changing mortgage providers?

When you look at switching mortgage deals, it’s important that you weigh up any savings against the fees involved with remortgaging. Sometimes the fees will outweigh the savings, and they include:

Exit fees

An exit fee (also known as a deeds release fee or mortgage completion fee) is charged by some lenders to close your mortgage account. This charge typically applies no matter whether your deal has ended or not

ERC (early repayment charges)

If you decide to switch mortgages before your fixed-rate deal or introductory period ends, this type of fee will usually apply. This is generally charged as a percentage of what you still owe and can be very costly

Arrangement and booking fees

Not all lenders charge arrangement fees, and it’s certainly less common with remortgages, however, some lenders may charge one

Valuation and conveyancing

The lender will instruct a new valuation to gauge the current value of your property and as you are switching to an entirely new lender, solicitors will still have to act on your behalf to carry out conveyancing and deed changes.

Many lenders offer fee free remortgages as an incentive to switch to them, meaning that valuation and legal fees won't always apply. Remember to compare deals to ensure you get the most beneficial mortgage terms for your circumstances!

When is it not a good idea to switch mortgage providers?

Getting the maximum benefit from switching mortgages is all about finding the right timing. In certain circumstances you will either be unable to remortgage or will be better off waiting for your circumstances to change. 

If any of the below situations apply to you, then now might not be the right time to switch, however, lender criteria are very complex so it’s always worth having a conversation with an experienced mortgage broker before you rule it out completely.

  • The ERCs are high

Unless you’re already on an SVR, the chances are you would have to pay an ERC to leave your mortgage deal before the end of its term. These fees can be quite high, so you would need to weigh up paying them against the savings you would make by leaving your deal early to see if it makes sense to remortgage now. 

In some cases it may be better to wait until you’re within six months of the end date before you switch mortgages, to avoid having to pay ERCs. 

Your current mortgage terms and conditions should highlight the size of any ERCs that may apply, but if you’re unsure it’s a good idea to reach out to your lender to find out, before making a decision about remortgaging. 

  • Your financial circumstances have changed

When you remortgage, you are taking out a new mortgage with a different lender. While you already have a mortgage with one lender, this doesn’t mean that you would meet the criteria for all lenders, as they all have slightly different requirements. This is especially true if your circumstances have changed for the worse. 

The new lender will want to complete full income assessments and credit check you in the same way that your current lender did when you took out the mortgage. You’ll therefore need to show more recent payslips, or alternative self-employed proof of income and bank statements.

If you’re earning less than you were when you originally applied for the mortgage, your job type has changed or you’ve lost your job completely, it can be more difficult to find a suitable remortgage deal. If you have significant equity in your home, it may help in some circumstances, but there will be fewer lenders willing to accommodate you. 

  • You have a small mortgage balance

If you have less than £50,000 left to repay on your mortgage, switching to a new lender won’t necessarily be beneficial. This is because sometimes the costs involved with remortgaging cancel out the savings you would make by switching to a new deal.  

The main reason for this is that the lower your mortgage balance, the less interest you will need to pay overall, so the savings that you could possibly make with a slightly lower rate of interest become more negligible. 

  • You have had recent credit issues

Again, as you’re approaching a completely new lender, they will want to be sure that you can afford to repay the loan. Aside from financial affordability, they will also assess the risk associated with lending to you in terms of your credit record. 

Those with more recent credit issues will be perceived as higher risk for a loan, and therefore it can make it more difficult to find a deal to suit you. That said, there are lenders that offer remortgages specifically aimed at people with bad credit, so it’s worthwhile speaking to a mortgage adviser for guidance.

  • Your property has dropped in value

If your property has dropped in value then the LTV (loan to value) of your borrowing will have risen. This means that the amount you now owe is a higher percentage of the total value of your home than when you originally took out the mortgage.

With a lower LTV you won’t have access to such competitive rates, so it may not be the best time to refinance. 

  • What about negative equity?

Negative equity is where you owe more than your property is currently worth. This can happen if house prices fall dramatically and/or if you miss multiple mortgage payments. 

Unfortunately, it’s unlikely that you will be able to remortgage under these circumstances. Lenders won’t usually consider a remortgage application until you have gained some equity back in your home, either through a bounce back in market prices, and/or once you have repaid enough to do so.

What to consider before switching mortgage providers

As everyone has such different circumstances, there’s no one mortgage product that will suit everyone, and as described above, there are some situations which mean remortgaging won’t always be beneficial to you right away.

An experienced mortgage broker will be able to help you consider the above points against your current circumstances and what’s available in the mortgage market, so seeking expert advice before you make the leap to switch your mortgage to a new deal is highly recommended. 

Before making the decision to switch it’s important to consider the following:

  • A product transfer is typically easier and cheaper to arrange, so make sure your current lender can’t offer you a more competitive deal before you settle on switching mortgage lenders

  • How much your property is currently worth, or more specifically, the equity you have built up and whether it will reduce the LTV (loan to value) of your borrowing enough to positively impact the interest rates available to you

  • Whether your financial circumstances or credit record have declined since you took out your original mortgage

  • Whether your existing deal has high ERCs that would reduce the benefits of switching. Your lender will be able to advise you about any charges that may apply

Kellie Steedquotation mark
When you're considering switching mortgages, timing is the most important factor. This is because your circumstances at the time of the remortgage will determine which deals are available to you, and therefore how much you could save.
Kellie Steed, Mortgage Content Writer

Switching mortgage provider FAQs

Is it worth switching mortgage providers?

It really depends on your exact circumstances. There are a lot of factors that contribute to whether or not a remortgage is right for you, and timing is key to this. 

Switching to a new deal can save you money on interest, afford you more flexible terms, such as the ability to overpay, or even allow you to borrow more, but this won’t be true for everyone, so it’s important to fully understand your choices.

This guide will help you to decide whether it’s worth you switching to a new lender, but if you’re still unsure, speaking to a knowledgeable mortgage adviser can help you make the right decision for you.

How long does it take to switch mortgage providers?

A typical remortgage takes around four to eight weeks to complete, however, it can be slightly quicker or take longer than this, depending on the complexity of the case.

If you’re simply transferring your mortgage to a different deal with the same lender (a product transfer) it is usually much quicker.

Can you switch your mortgage at any time?

You won’t usually be able to remortgage or do a product transfer within the first six months of taking out your mortgage, however, you have the choice to switch mortgages at any point after that. 

Remember that if you are currently in a fixed-rate deal or within the introductory rate period on a tracker or discount deal, you will likely have to pay ERCs (early repayment charges) to leave the deal before the term has ended, however.

How is my property valued when I switch my mortgage rate?

When you switch mortgage providers, the new lender will want to do a full valuation of your property, similarly to the one that was carried out before you bought it. This is to determine its current market value, which may have risen or fallen since your purchase. If you opt for a product transfer with your existing lender, they won’t usually need to do a new valuation.

Can I switch to a new mortgage deal and change my term at the same time?

Yes it’s possible to change your terms in a number of ways when you remortgage, for example, you might want to switch from an interest-only to a repayment mortgage, from a fixed-rate to a tracker rate, or to a deal with more flexible terms, such as an offset mortgage. 

It’s even possible to change a residential mortgage to an investment rental property by remortgaging to a buy-to-let mortgage, if this suits your circumstances. So long as you meet the criteria of the new lender, you can generally choose the terms that suit your needs. 

Can I remortgage a home I’ve bought through a government scheme?

Generally, yes you can, but it will depend on which scheme you used and your circumstances. Not all lenders offer remortgages to those applying through government home ownership schemes, and those that will are usually the same lenders that also offer mortgages to this type of applicant.

  • Shared ownership mortgages can usually be remortgaged based on the value of your share of ownership.

  • Right to Buy mortgages can also generally be remortgaged, however, this can be more complex. Depending on when you bought the property, you may not be able to make any changes for a defined period or may have to pay off your equity loan in order to do so.

How often should I remortgage?

There are no set rules about how often, or even whether you should switch your mortgage deal at all. The best time to do it is typically when your current deal comes to an end, or when it otherwise makes financial sense to do so.

It’s also worth bearing in mind that if you keep leaving deals early and paying ERCs in order to get a better interest rate, the fees paid over the lifetime of the mortgage will likely outweigh the benefits you get from changing mortgage deals in the first place. Seeking advice is the best way to make sure switching your mortgage is in your best interest.