Whether you’re on the hunt for a better interest rate, need more payment flexibility or want to release some extra cash to finish off that loft conversion, remortgaging can make huge financial sense and possibly save you thousands – yes, thousands – of pounds a year. But should you remortgage with the same lender?
None of us like to pay over the odds – whether it’s for car insurance, the weekly grocery shop or the monthly mortgage bill. But the truth is that some two million Brits are overpaying on their lender’s SVR (standard variable rate). What’s an SVR? Basically, it’s the bog-standard interest rate your lender shifts you to when your initial fixed-term teaser rate expires – and being stuck on it is pretty much the same as throwing money down the drain.
With interest rates set to rise further over the next couple of years, it’s more important than ever to check if you could save some cash by remortgaging to a new fixed-term deal. Don’t think it’s worth the hassle? Think again – it really isn’t that much hassle, especially when you have the experts at Habito helping you out, and the savings can be seriously significant. We’re talking week-in-the-sun, new-flatscreen-TV significant! In fact, the only question you should be asking is whether it makes more sense to remortgage with the lender you’re already with or take advantage of a better deal elsewhere. So read on as we explain the pros and cons of staying put or switching.
Should I Remortgage with the same lender or should I switch?
The answer to this depends on all sorts of things, from what exit fees are involved to how healthy your credit rating is. But one thing it definitely doesn’t depend on is loyalty. Staying loyal to your partner, pet or favourite footie team is usually worth the effort. Staying loyal to your mortgage lender usually isn’t – what we call the ‘mortgage loyalty penalty’ costs the nation an estimated £29 billion every year in excessive mortgage payments. You’re free to take your mortgage elsewhere when your fixed term comes to an end (usually two to five years), so do your research and work out whether it’s a better deal to stay or switch. But whatever you do, don’t do nothing.
STAY – You can skip the fees
When you remortgage with a new lender, you need a conveyancer (a solicitor who specialises in property law) to sort out the paperwork involved in swapping over your outstanding loan. You’ll also need to get a current valuation and probably have to pay an exit fee for jumping ship from your existing lender. In other words, switching to a better deal elsewhere usually means a degree of financial and logistical pain for your remortgage gain (although many deals pick up the tab for some of these fees).
However, things are different if you simply want to move to a new mortgage deal with your existing lender. This is officially known as a product transfer, but it could just as easily be called a minimum fuss remortgage. Why? Because your biggest reward for staying put is a fee-free, hassle-free switch. No extra legal paperwork, no new valuation and, as you’re not actually going anywhere, no exit fee either.
STAY – You can save time
You may be in a mad rush to remortgage, but all that extra paperwork means switching to a new lender can take a fair amount of time – ideally you need to start looking into the available options roughly 4 weeks to three months before your current rate expires.
On the other hand, pick a no-fuss product transfer with your current lender and you could be remortgaged to a new deal in the time it takes to say: ‘Why did we stay on that dreaded SVR rate for so long?’. Just remember, though: you’ll have all the time in the world to count the cost if you could have got a better deal by going elsewhere.
STAY – You’re already a trusted borrower
Just because you were approved for a mortgage a few years ago, there’s no guarantee you’ll get a remortgage with a new lender. They’ll carry out a fresh credit check, and if your circumstances have changed then you may not match their affordability criteria. Maybe you’ve been made redundant, switched to being self-employed or you’re currently on maternity/paternity leave – major changes such as these can make securing a new remortgage deal trickier.
However, your current lender doesn’t have to perform a credit check when you remortgage, as long as you’re not borrowing more money or making major changes – after all, they already know whether you can make the monthly payments or not. Obviously this can be a real bonus if your affordability rating has taken a bit of a knock recently. Beware, though, this isn’t a blanket rule – some lenders still carry out credit checks on existing customers to be on the safe side, so double-check the fine print.
SWITCH – You can access the best deals
Stick with the same lender and you’re only going to be able to access their deals, which is just a tiny fraction of the overall remortgage market. Even worse, as an existing customer you might not even be able to take advantage of all their shiny ‘new customer’ deals either.
There’s a whole world of discounted rates and juicy incentives out there, so even if your existing lender is offering a good deal you’d be mad not to compare it with what else is on offer. The easiest way to do this is via an online broker such as Habito. We search far and wide – more than 20,000 mortgages and 90 lenders – to bring you the very best deals out there. And we’re free, so no more dreaded fees to add to the spreadsheet.
Another problem with sticking with the same lender is that your property will probably get a drive-by valuation at best. Why does this matter? Because you won’t benefit if the market value has increased significantly and the LTV (loan to value) has changed as a result. LTV is the size of your mortgage as a percentage of the value of your property and works across pricing bands (95%, 90%, 85%, 80%, 75%, etc) – the lower your band when you apply for a remortgage, the wider your choice of deals will be.
SWITCH – You can make your loan more flexible
As well as saving you money, remortgaging with a new lender can give you increased flexibility over your finances. For instance, you might have had a windfall or promotion at work and want to start making overpayments to reduce your overall loan. Or you might want the option to take a payment holiday at some point in the future. Whichever mortgage bolt-on you’re after, chances are there’s a deal out there for you. But remember that increased flexibility will probably mean a slightly increased interest rate, so make sure your bolt-ons are going to be put to good use.
SWITCH – You’ll be welcomed with open arms
As 21st-century consumers we’re bombarded with incentive deals all the time, from BOGOFs to cuddly meerkats, and the remortgage market is no different. That’s great news for switchers as there’s a huge range of ‘golden hellos’ to pick from as a new customer – from free legal work to juicy cash-back offers. One word of warning, though: sometimes the rates on these deals are higher than the no-frills rates, so they could end up costing you more in the long run.
Ready to find the best remortgage deal for you? Our expert advisors can start helping you find your next mortgage up to four months before your existing deal finishes. We’re always happy to take a look and tell you if it would be worth switching early or waiting. You’ll only have to enter your details once and we’ll handle the rest for you when the time is right. You can start the process here or get a quote using our mortgage calculator here.