Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it.
A mortgage is almost certainly the biggest loan you’ll ever take out in your life, which makes the rate of interest you pay on it of crucial importance. In some cases, it could make the difference of thousands of pounds a year.
Ensuring you are on the lowest mortgage rate possible for your circumstances almost always involves switching mortgages. In many cases, you will need to change lenders too.
Switching lenders – for example, from Santander to HSBC or from Barclays to Leeds Building Society – is officially known as remortgaging.
This is not to be confused with a ‘product transfer’, which refers to staying with your existing lender and switching mortgage deals.
In either case, if you want to top up your loan during the process of switching mortgages, you’ll need to apply for a ‘further advance’. If your application is successful, you’ll be able to borrow more money against your home.
To avoid paying your lender’s standard variable rate (SVR), you should aim to switch mortgage provider – or even just mortgage deals – as soon as your current offer ends. This is likely to be either two, five, or ten years from its start date.
The standard variable rate is a lender’s own central rate of interest. It is usually considerably more expensive than any new mortgage deal, either from that lender or any one of its competitors. However, as SVRs do not come with tie-ins, you will be free to leave the deal at any time penalty-free.
You can usually apply for a new mortgage up to six months in advance from the date you need it to take effect. Once the offer has been issued, it will come with a completion deadline. These vary, but the maximum will be six months.
The digital age has made the process of switching mortgages more seamless than ever. But it still pays to get virtual paperwork organised in advance. These can include, for example, bank statements, payslips, scans of your passport, and employment contracts. You would need to provide your partner’s documents too if you are buying together.
It’s also a good idea to check your credit score before you apply to switch mortgage providers. This will give you a chance to rectify any potentially nasty surprises ahead of the new mortgage provider’s search of your report.
Between three and six months before your current mortgage offer expires, get in touch with an independent mortgage broker, such as our partners London and Country or Fluent. Both are free-of-charge and will provide you with mortgage options from across the whole market. Alternatively, you can do your own research and compare the latest remortgage deals at MoneySuperMarket.
Once you’ve identified the deal you want to go for, make your application either via your broker or direct to the chosen lender. This is where you’ll need your paperwork, as outlined above. Your new lender will carry out a valuation to check the property is sufficiently secure for the loan you are applying for.
If everything stacks up, a mortgage offer will be issued, which you’ll need to sign and return. This will usually be valid for three to six months. Then, the legal work is carried out, typically by a solicitor. Many remortgage deals come with free, basic legal work. But if the legal work is more complex, you may be charged additional costs.
A completion date for when the old mortgage closes and the new one opens will be arranged. Always double-check that the start date of your new mortgage is outside of any tie-ins with your current deal. If your new mortgage completes too early (even by a day) and tie-ins still apply, you could be hit with expensive early repayment charges.
On completion, your new lender will draw down the funds and pay off your old lender. Your debt is now with the new mortgage provider.
If your old lender applied a mortgage account fee when you took the loan, which you opted to defer, you might be charged this fee when the mortgage closes.
Your next monthly mortgage payment will then be to your new lender. This will be by direct debit, which you will have previously set up.
When you remortgage to a different lender, your affordability for the loan will be assessed from scratch. What’s more, you’ll need to go through the standard credit and ID checks again.
If your circumstances or income/outgoings have changed since you qualified for your current mortgage (i.e. you’ve been furloughed, become self-employed, or had a child), your application may not stack up with a new lender.
In this case, your best bet is to find out what your current lender can offer. So long as you have built up a history of reliable payments, affordability checks can be less rigorous.
It’s likely that any deal your current lender can offer you will be cheaper than dropping onto its standard variable rate.
If you’re looking to switch mortgage provider, comparing remortgage deals with MoneySuperMarket is a good place to start.
All you need to do is provide us with a few details about yourself, your home, and your current deal. We’ll show you what’s out there.
Your home may be repossessed if you do not keep up repayments on your mortgage.
If your mortgage is very small and you want to retain flexibility, including the possibility of paying it off early, it could make sense to stick with your current mortgage provider. It may be worth it, even if it means paying its standard variable rate (SVR).
This is because the higher interest rate will have less of an impact on your monthly repayments. Also, standard variable-rate mortgages do not come with tie-ins, meaning you are free to redeem it at any time, penalty-free.
There is a fair amount of paperwork involved in switching mortgage lenders, although much is now digital. But it’s usually more than worth it for the money you save in interest.
If you use a mortgage broker, such as our partners London & Country or Fluent, much of the legal work is carried out for you.
When you switch mortgage, a solicitor can help you handle liaison with both your existing and future provider. They will also oversee the rest of the conveyancing process.
This will include a number of different things, such as:
Carrying out legal work to transfer your mortgage to the new provider
Organising a house valuation for your property
Transferring funds between both lenders (current and future) to extinguish your current mortgage
Filing a date for your new mortgage deal to officially start
As with everything, switching mortgage deals and lenders can have its own set of drawbacks.
Here are a few you may want to take into consideration:
Changing lenders can take months and may cause delays in closing time
When you switch mortgage, you will need to go through another credit check
You may need to get a new appraisal