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When should you switch mortgage?

The mortgage market in the UK can be confusing, especially when it is time to remortgage. There are 90+ lenders, 4,000+ mortgage brokers and then there are comparison sites that you can visit to try and search for deals. The sheer choice is confusing and it isn’t clear to many what the best way to go about remortgaging is so that you can find the best deal for you without hassle.

As part of a study published in March 2019, the FCA reported that 30% of consumers could have found cheaper mortgage deals and were on average paying £550 pounds more than they should. They also found that more assistance is needed to help people find the right intermediary, as a wrong decision could increase the cost of borrowing by up to £400. There are about 800,000 people who do not switch to a better deal, costing them up to £1,000 a year. Moreover, many people who switch deals after their mortgage deal has expired are only becoming aware of it once their mortgage payments start to increase unexpectedly.

Why are so many people struggling to get this right?

In this article, we help explain what a remortgage is and when is the right time to remortgage.

What does remortgage mean?

Remortgaging is where an individual moves from one mortgage deal to another. You can switch to a new mortgage deal within the same lender, which is known as a product transfer, or you can switch to a different lender. In the UK, according to the 2019 FCA market study on mortgages, there are approximately 1.2 million remortgages that occur a year of which approximately 40% of homeowners are switching with the same lender.

When should I remortgage?

1. The existing deal is about to end – typically, the best mortgage deals will provide an introductory offer, often lasting 2 to 5 years for fixed, tracker or discount mortgages. Once this deal ends, the lender will move you to its standard variable rate (SVR), which is likely going to be more expensive compared to other deals that are available to you. You can start looking at deals 6 months prior to when your deal period is ending.

2. Find a better rate – it is possible that while you are in your deal period, that you could benefit from switching to a new deal by paying a lower interest and saving money after taking into consideration any early repayment charges.

This especially may be possible, if you drop below a lenders loan to value (LTV threshold). This refers to the amount you borrow versus the value of your home. Typical lender thresholds are - 90%, 85%, 80%, 75% and 60%.

3. Move to a flexible mortgage – if your existing product doesn’t have the features you are looking for then you may decide to switch to a new product that provides you flexible features such as being able to take payment holidays, taking the benefit of your savings to offset the mortgage balance on which you pay interest or being able to make unlimited overpayments without charges. Just be aware that there will be additional costs for these types of features.

4. Equity release – ability to release value in your property for cash, while still living in your home. Before you do this, you should understand the pros and cons. There is a good article by Martin Lewis on MoneySavingExpert that we recommend you read.

5. Home Improvements – homeowners may wish to borrow more so they can make improvements to their home which could be seen as an investment if done well as it can increase its value in the long run.

6. Debt consolidation – if you have more expensive debts, one option is to clear them by borrowing funds against your home. Whilst this may make financial sense, you need to be careful as failing to meet your increased monthly payments would mean that you are at risk of losing your home.

7. Value of your home has increased significantly – lenders provide better deals to homeowners with a lower LTV. If the value of your property has gone up significantly since you took out the mortgage then you may be eligible for better deals. You will need to do the maths to check whether the benefits outweigh any early repayment charges that you may be subject to.

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