Switching your mortgage lender
Remortgaging with another provider could save you money.
In certain circumstances, switching your mortgage - otherwise known as remortgaging - can save you money.
You can either switch to a mortgage from a new lender or to a different mortgage with your current provider.
- You can remortgage with your current provider, or switch to a different one
- Remortgaging could save you money when your current fixed rate deal ends
- There are fees associated with switching your mortgage provider so you should do your sums to be sure it’s worth it
When should I think about switching mortgage lenders?
You might want to think about remortgaging with a different mortgage provider for a variety of reasons, including:
Your current deal is ending
When the introductory interest period on your fixed-rate, discount or tracker mortgage deal ends, you’ll automatically be switched onto your lender’s standard variable rate of interest (SVR).
This will probably be higher than what you’ve been paying previously and your monthly repayments will go up, sometimes drastically. The SVR is also likely to be higher than other deals on the market, so it’s worth looking into switching before the new rate of interest kicks in.
Your loan-to-value (LTV) ratio has decreased
As you pay off your mortgage, and you own more of your home, your LTV ratio can decrease. This will also be the case if your home has gone up in value since you initially purchased it.
Mortgage lenders offer better deals when you borrow at a lower LTV, because the loan is seen as less of a risk. So, switching your mortgage when you own more equity in your home can get you a better deal.
You want to make overpayments
If you’ve come into a lump sum of money - or perhaps had a rise in salary - making monthly overpayments on your mortgage can reduce the term of your mortgage and save you a lot of money in the long run.
If your current mortgage lender doesn’t allow overpayments, you could look into switching to a new deal which offers you that flexibility.
You want to switch to a better deal
It can pay to regularly review your mortgage and check if you could get a better rate elsewhere. Remember to consider the costs involved with switching and whether they outweigh any savings you'll make by changing mortgages.
If you’re have a variable-rate mortgage and are worried about your monthly payments increasing, you might want to compare fixed-rate deals, so you know exactly how much your mortgage is going to cost you per month.
You want to borrow more
If you’re looking to release some of the equity in your home and your current provider isn’t able to accommodate that, you could look at switching to a different lender.
Again, you need to factor in all the fees involved to be sure whether it's the most cost-efficient way of borrowing money.
Can I switch mortgage providers?
If you decide to remortgage, you can either take out a new mortgage with your current lender , sometimes called a product transfer, or switch to a new lender altogether.
There are pros and cons to both, depending on your circumstances.
Switching mortgages with your current provider can often be done quickly, in a matter of days. That’s because they already have all your personal details and financial history, so they probably won't have to run credit or affordability checks.
It could take up to eight weeks to switch to another lender because you'll need to set up a new account and pass all their financial checks.
Staying with your current lender also means you won’t need to organise and pay for a valuation, or employ a solicitor to do any conveyancing. You'll usually also avoid having to pay an exit fee.
However, your current lender will only have a limited amount of mortgage products on offer. You could get a much better deal from another lender and find a provider who can offer the sort of flexibility that’s important to you, such as the ability to make overpayments.
So it's worth comparing the different options available when you’re thinking about switching.
Will I be charged an exit fee?
There are some costs associated with remortgaging with a new lender, these include:
Sometimes known as a deeds release fee or mortgage completion fee, a lender could charge you up to £300 to close your mortgage account and send on the title deeds of your home to your solicitor.
Early Repayment Charge (ERC)
If you remortgage before the introductory tie-in period of your mortgage ends, you'll usually have to pay an ERC. This is normally worked out as a percentage of your outstanding mortgage debt. You can avoid this charge if you switch mortgages after your introductory period has come to an end.
Mortgage arrangement and booking fees
Your new provider may charge a fee for setting up your new mortgage.
These are fees you pay to your solicitor to undertake the legal work associated with your new mortgage.
Your new mortgage provider will want to value your home to be sure it’s worth the amount they are lending to you. The good news is that many lenders offer ‘fee-free’ mortgages, where they will pay your valuation and legal costs if you switch to them.
If you use a broker to recommend and arrange your new mortgage, you’ll usually be charged for their services.
When is it not a good idea to switch mortgage lender?
There are circumstances when remortgaging with a different lender might not be the best option for you. For example:
If the ERC is very high
Leaving a fixed-term deal before your tie-in period has ended can be expensive. It may be worth waiting to switch, especially if you’ve only got a short time left before the incentive period ends.
You have a small mortgage
If you have less than £50,000 left to pay on your mortgage, it's unlikely you'll make savings when you factor in the costs of switching.
Your financial circumstances have changed
Lenders will ask to see full evidence of your income and outgoings when you apply for a new mortgage. They need to be sure you would be able to afford your mortgage repayments even if interest rates rise. So, if, for example, you’ve had a drop in salary, been furloughed, had issues with debt which show up on your credit file or even if you’ve added to your family since you first applied for your mortgage, a new lender might reject your application.
Your property has dropped in value
This can place you in a higher LTV bracket, so you’re less likely to be eligible for the best mortgage rates. If you slip into negative equity - where you owe more than your property is worth - you’re also unlikely to be offered a new deal.
How do I switch my mortgage provider?
If it sounds like remortgaging with another provider could be the right move for you, start searching at least three months before you want to make the switch.
When you’ve found the mortgage you want to switch to, you can either apply directly to the lender, or get a broker to do it for you.
You’ll need to ask your current lender for a redemption statement, which shows how much you owe on your existing mortgage, along with any charges you'll be liable for.
The new lender will carry out eligibility and affordability checks, look at your credit file and organise a valuation of your property.
If they’re happy to proceed, you’ll receive a mortgage offer. Your solicitor will then sort out the legal paperwork and request the money from your new lender to pay off your old mortgage.
If you’re thinking about remortgaging, try comparing remortgage deals to see whether you could save money.