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Should I switch mortgage lenders?

Category: Mortgages
Author: Derin Clark
Updated: 12/03/2019

Should I switch mortgage lenders?

If you have been with the same mortgage lender for many years you could be missing out on thousands of pounds of savings by not switching your mortgage to a new lender. There are occasions when sticking with your current lender is the best option. For example, some lenders offer no or reduced fees for their current customers to switch to a new product. However, in most cases, borrowers would be well-advised to search the mortgage market to access the most competitive rates.

Here we look at when you should and shouldn't switch mortgage lenders.

At a glance:

  • When your fixed-term deal ends you will be automatically put on your mortgage provider's standard variable rate (SVR) or another revert rate.
  • Not switching at the end of your initial mortgage deal is likely to result in increased monthly mortgage payments.
  • Over time, your loan to value (LTV) could decrease, and mortgage products generally offer lower rates for lower LTVs.
  • If you only owe a small amount on your mortgage, then switching fees may make a change in mortgage products less financially attractive.

Four reasons to switch mortgage lenders

  • Your current mortgage deal is soon to finish.
  • Your loan-to-value has decreased to a more competitive band.
  • You want to fix your mortgage.
  • Mortgage rates have reduced over time.

Your current mortgage deal is soon to finish

Often the initial rate you pay for a mortgage is set for a period of time that once expired, reverts to the mortgage provider's SVR. The exact period of the initial rate will vary depending on the deal, for example a two-year fixed mortgage rate will either last for two years from the date you take out the mortgage or on a date of two years or more set by the lender. Discounted variable rates can also be for a set period of time.

If you signed up for a mortgage with a set time period for the initial rate, then once this ends you are likely to be placed onto a higher SVR and your mortgage repayments will go up as a result. Lenders should send you notification that your initial rate is coming to an end, but it is worth noting down the date yourself as well. You should allow at least three months to start comparing current mortgage deals.

Loan-to-value has decreased to a more competitive tier

When you compare mortgage deals you will often find the lower rates are with the deals that require a lower LTV. Your LTV can decrease over time as you pay off your mortgage balance and can further reduce if your home also increases in value. Therefore, the rates available to you now may be lower than when you first took out your mortgage, as you will likely be in a lower LTV bracket.

You are able to make overpayments

A pay rise, inheriting a large sum of money or paying off a large debt can all lead to an improvement in your financial situation, in which case you may have more money for your mortgage each month. It is important to check that your current mortgage can accept overpayments before doing this. If this is not possible and you are comfortable with any early redemption payments (if applicable) then you could look for a new mortgage deal and reduce your mortgage term. Reducing your mortgage term will increase your mortgage payments but save you money in total interest costs.

You want to fix your mortgage rate

During financially uncertain times mortgage borrowers often want to lock their mortgage into a fixed-rate deal as it gives them certainty of the cost of their mortgage each month. Borrowers on variable rate mortgages may decide they do not want the risk of an increase in the Bank of England base rate and consequently a potential increase in their mortgage.

Mortgage rates have reduced over time

When mortgage rates consistently drop over time, then you may find your current mortgage rate is less competitive than it once was. If the reduction in rate is great enough this can still outweigh the impact of early redemption fees and the costs of obtaining a new mortgage deal. When making this type of decision it is important you take mortgage advice to make sure the finances do stack up in your favour.

When you should stay with your mortgage lender

Three reasons to stay with your mortgage lender:

  • You have a small mortgage balance.
  • You are in negative equity.
  • You are in a fixed term deal.

You have a small mortgage balance

If you only owe a small amount on your mortgage such as £50,000 or less, you may struggle to find a mortgage with a new lender. If you want to try and find a better deal then you should talk with a mortgage broker.

You are in negative equity

Whereas once you could be almost certain that your house will increase in value, today this is no longer a certainty. If your property loses value, you could find yourself in a higher LTV bracket or even worse negative equity (where you owe more than your property is worth.) If your current mortgage deal is still running, then it is not likely that switching will be a better financial result for you – unless rates have dropped materially, and the higher LTV rates are lower than your current deal. For those in negative equity, it may be difficult to find a lender to switch to and speaking to a mortgage adviser is recommended. If your LTV has worsened and you are at the end of your deal, then comparing mortgages is still a worthwhile rather than reverting to your lender's SVR.

You are in a fixed-term deal

It can be costly to leave a fixed-term deal before the term has ended as most fixed mortgage deals will charge an early exit fee. In some cases, leaving your fixed rate early will work in your favour, especially if rates have dropped since you started your original deal. However, it may also be better if you have a short time left on your fixed deal, to wait for it to end before switching. Either way, a mortgage broker can help you work out if there are savings to be made and if these are relevant to you.

How to switch mortgage lenders

Can you switch your mortgage to another bank?

Yes, but you will need to meet the credit score and affordability requirements of the new lender.

How much does it cost to switch mortgage?

The cost of switching could include:

  • Early exit fees from your current product.
  • Application or product fees to secure your new mortgage rate.
  • Valuation and legal fees.

In some cases, lenders may offer free application, valuation and legal fees. If you choose to use a broker, then you may need to pay them a fee as well.

How long does it take to switch mortgage lenders?

Switching mortgage lenders normally takes between four to eight weeks, but it can take longer if there are complications. Switching mortgage lenders usually takes longer than switching mortgage deals with your existing lender as the application process is often more in-depth than when simply changing deals with your current lender.

Pros and cons of switching mortgage lenders:

Lifetime Mortgages
Advantages Disadvantages
  • It could get you a better rate, meaning that you are paying less each month than if you stay with your current mortgage provider.

  • If your financial situation improves, switching lenders could mean that you can reduce your mortgage term and reduce total interest costs

  • Changing to a mortgage lender offering a fixed-rate deal during times of economic uncertainty will provide you with the peace of mind knowing that your mortgage payments won't change for that set period of time.

  • You could have to pay extra costs to switch mortgage lenders. You could get a better deal with your current lender and avoid some of the costs.

  • It can be more difficult to switch lenders if you have negative equity or a change in your financial circumstances.

Moneyfacts tip

Working out if a change in mortgage and mortgage lender is financial beneficially for you can be complicated. A mortgage broker can help you assess the benefits.

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.