Should I remortgage with my lender or switch?
When it’s time to think about remortgaging, many people are left pondering whether to stick with their lender or explore elsewhere to find the best deal. Remortgaging can save you thousands of pounds over the course of your mortgage.
A study by the Financial Conduct Authority found that 42% of mortgages were with the same lender, while only 20% switched to a different lender. What's more, 30% of mortgage holders could have found a better deal if they had shopped around, saving them on average £550 per year.
In this article, we’ll outline the upsides and downsides of sticking or switching when you remortgage to help you come to the right decision. But first, let’s look at the reasons why you remortgage in the first place.
Reasons to remortgage
Remortgaging is essentially moving from one mortgage deal to another. You could switch to a new deal with the same lender, known as a “product transfer”, or switch to a different lender.
Depending on your circumstances, there are all sorts of reasons to remortgage. Obviously, if your current mortgage deal is coming to an end, you’ll want to remortgage. Otherwise, you’ll end up on your lenders' standard variable rate, which is expensive.
That being said, there are reasons you may want to consider remortgaging sooner, while you’re still in your deal period. You may find a better rate elsewhere, or want to switch to a mortgage with more flexible terms, such as payment holidays. Other reasons may be to release equity in your home, fund home improvements, or consolidate debts. Check out our article “Remortgages in the UK demystified” for more details.
Here are some things to think about before deciding to stick or switch.
Sticking with the same lender
A whole bunch of costs can be avoided by staying with your lender. For starters, there is no exit fee, aka. redemption fee, for leaving your lender. Legal and valuation fees may also be avoidable. Switching to a different mortgage with the same lender is typically a “product transfer” that avoids these fees. Although, it is important to check the fees before you go ahead as this is not always the case. If you’re existing your mortgage before the end of its term, you may have to pay hefty Early Repayment Charges (ERCs).
Sometimes your lender may also waive the ERC if you stay with them, even if you switch before the end of the mortgage term. So you may have the flexibility to switch to a different type of mortgage without paying hefty fees if you stay with your lender, which could be appealing to some.
Secondly, your existing lender knows you, they have your details and this may save you the trouble of a credit check when you remortgage with them. If you’re somebody who struggled for mortgage approval in the first place because of a poor credit score then this will be a cause for celebration, as you may be able to avoid the stresses and struggles of obtaining mortgage approval!
However, it is by no means guaranteed that your existing lender will not bother with a credit check. If your financial circumstances have changed, such as switching jobs or starting your own business, your lender may request a check of your current financials against their lending criteria.
If time is of the essence, then you may prefer sticking with your existing lender. Staying with your existing lender is a quick process compared to switching lenders. They already have your details so you won’t get lost in paperwork.
Now to the downsides of sticking with your lender. The menu of options to remortgage will be limited. You may be missing out on deals that could save you thousands of pounds by considering other lenders. Many lenders offer incentives to new customers, so you’ll miss out on these rewards as well if you stay put.
Don’t forget, that the advice you’ll get from your existing lender will often be biased. They may advise you to take out a mortgage that may not necessarily be the best option for you as they may not offer a wider range of options to suit your needs.
Many people are left thinking to themselves “I can save the hassle and all of these costs if I remortgage with the same lender”. However, they could be missing out on a better deal elsewhere.
Switching to a different lender
Your choice of mortgages will be drastically larger if you consider other lenders, potentially saving you thousands of pounds. On top of that, lenders often offer incentives for new customers, such as cashback.
What's more, you’ll receive impartial advice on the best mortgage to go for, if you go with an independent mortgage broker. You’re more likely to find the right mortgage for you with a wider choice of options and impartial advice.
With greater choice comes greater flexibility too. As your life circumstances change so could your mortgage needs. For example, you may want a mortgage that allows you to make regular overpayments or gives you the possibility of payment holidays. You’ll have a better chance of finding a mortgage that best suits your current needs by looking beyond your current lender.
Although you may find a better deal with a different lender, you should factor in the costs of switching, as these costs could be avoidable if you don’t switch lenders. For starters, you’ll need a property lawyer to do the legal paperwork for switching. The new lender may require a new valuation of the property too. Also, you’ll typically need to pay an exit fee of roughly £100 to leave your existing lender.
It is worth noting that these are upfront fees, so you’ll need the money today in order to cover them. However, new lenders sometimes cover the legal costs of switching. Often brokers offer incentives such as free legal fees and free property valuations to new customers to entice you.
While a revaluation of your property may be costly and time-consuming, it may work in your favour. The report could reassess your property at a higher value, lowering your loan-to-value (LTV), which may allow you to get better terms or access to lower-rate mortgages.
Switching lenders can be time-consuming and you need to stay on top of things to get the job done. Typically, it takes two months from the day you make your new mortgage application. So you’ll need to be organised and allow time before this to find the best mortgage for you.
Ultimately, choosing whether to stick with your lender or switch to another is your decision to make. While the costs of switching lenders can add up, don’t forget that you can potentially save significantly on your monthly mortgage repayments, so don’t let the upfront costs of switching put you off.