Should You Switch Mortgage Deals | moneyfacts.co.uk

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Derin Clark

Derin Clark

Online Reporter
Published: 03/08/2021

The mortgage rate wars have been heating up over the last week with more lenders now offering sub-1% mortgage deals. Although the continual battle amongst some of the most popular high street lenders to offer the lowest possible mortgage rates makes switching mortgage deals tempting right now, for some mortgage borrowers switching deals could result in costing them more in the long run.

When to consider switching mortgage deals

Those who have already come to the end of their fixed rate mortgage deal and been transferred onto their lender’s Standard Variable Rate (SVR) should always consider switching to a new mortgage deal. The SVR is usually much higher than the most competitive rates available in the mortgage charts, meaning that mortgage borrowers could reduce their repayments by hundreds of pounds simply by switching.

For example, the average SVR is currently 4.40%. A homeowner with a property valued at £350,000 and who has an outstanding mortgage of £210,000 on a 20 year term, would be making monthly repayments of £1,317.25. If, however, they switched onto the lowest rate available in our remortgage chart for this lending criteria, they would be on a deal at a rate of 0.92%. This would result in monthly repayments of £958.30.

Clearly it makes sense for those on their lender’s SVR to consider switching, but what about borrowers already locked into a mortgage deal?

For these homeowners, the decision to switch mortgage deals is more complicated. These borrowers need to consider the cost of exiting their existing mortgage deal early, along with taking into account the potential fees on the new mortgage deal.

In the past, for many mortgage borrowers it would make more financial sense to stay within their existing deal and only switch once they are nearing the end of the fixed term. Now, however, with a range of record-low sub-1% mortgage rates available in the charts, it may be financially-savvy to switch deals if there is just a year or two left on the existing deal.

For those who have recently switched to a new mortgage deal, particularly a five year fixed deal, it may be better off staying with the existing deal once exit charges and product fees are taken into consideration.

Homeowners who are unsure about whether they should switch from their existing deal onto a new, lower rate, may want to consider speaking to a mortgage broker who will be able to take into account exit charges, product fees, along with their likelihood of being accepted for the most competitive rates, when advising what is the best option for the borrower.

As Eleanor Williams, finance expert at Moneyfacts.co.uk, explained: “It would be wise for borrowers to confirm what options may be available to them for a new mortgage, even if perhaps their existing lender is unable to offer a new deal, as eligibility criteria and requirements vary from lender to lender. The support and advice of an independent adviser might find options which could save them significant sums and help to calculate the true cost to uncover the best options for individual circumstances.”

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Readers of Moneyfacts.co.uk can speak to a mortgage broker for free when using our preferred brokers, Mortgage Advice Bureau. More information about this offer can be found here.

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