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 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 staying 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.
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It will depend on your current circumstances, as remortgaging is much like your original mortgage application. As 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 existing one did.
This means that it could be trickier for people in certain situations, for example, if your financial or credit circumstances have declined, or if your property has fallen into negative equity.
Sort of, although this is not a cash deposit like you would have put down 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. On the other hand, the greater the equity, the bigger the ‘deposit’ you’re providing the lender. Therefore the interest rates available to you will be lower, and you’re likely to be able to extend your borrowing, if you want to.
If you’re unable to switch your mortgage to a new provider straight away due to changes 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 to switch your deal 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 a better deal with your existing lender, if they have one available. However, you can’t typically borrow more money with a product transfer.
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, save 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:
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 often higher than fixed-rate deals, so your mortgage repayments will 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 remortgage before the date your deal ends.
If you’re on a variable rate, such as a tracker or discount 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 keep yourself informed of interest rate rises and act quickly if you feel that your mortgage rates will be affected by potential 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.
There are all sorts of flexible mortgage deals available these days that could have more beneficial terms than you currently enjoy. For example:
Overpaying your mortgage – if your existing mortgage doesn’t allow for this or charges you fees if you 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 interest – offset mortgages can be a great way to save money if you have substantial savings, as they let you use your savings balance to reduce the interest you are charged on your mortgage.
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. 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 still 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.
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.
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 reason for borrowing can also change from one to the next, but some will consider a loan for any legal purpose.
It’s best to start researching early, 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, in the meantime.
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:
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
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
Not all lenders charge arrangement fees, and it’s certainly less common with remortgages, however, some lenders may charge one
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!
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.
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.
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.
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.
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.
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.
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.
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 be beneficial to you.
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 a remortgage
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 loan
Whether your existing deal has high ERCs that would reduce the benefits of switching. You lender will be able to advise you about any charges that may apply
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.