Should I switch mortgage lenders?

If you have been with the same mortgage lender for many years you could be missing out on thousands of pounds in savings by not switching your mortgage (otherwise known as remortgaging) to a new provider.

There are occasions when sticking with your current lender is the best option – for example, some lenders offer no or reduced fees for their current customers to switch to a new product – but in most cases, borrowers would be well-advised to search the mortgage market to access the most competitive rates.

Here we look at when you should and shouldn’t switch mortgage lenders.

Five reasons to switch mortgage lenders

1. Your current fixed deal is about to end

If you’ve got a fixed rate deal that’s about to mature, you’ll likely want to switch product to ensure your mortgage doesn’t revert to the lender’s standard variable rate (SVR). This would likely result in a much higher interest rate and therefore higher repayments, so switching lender can make a lot of sense.

Your current lender should send you a notification that your initial rate is coming to an end, but it’s worth noting down the date yourself as well. You should allow at least three months to start comparing current mortgage deals.

2. You can get a cheaper interest rate

If interest rates have dropped dramatically since you first took out your mortgage and you stand to make a substantial saving by remortgaging, you don’t necessarily have to wait until your current deal has come to an end before you switch.

However, it’s important to thoroughly check the numbers, taking any exit fees and early repayment charges into account, as these could wipe out any potential savings you could make from a cheaper deal.

But, if the reduction in rate is great enough, this can outweigh the impact of those fees and the associated costs of obtaining a new mortgage deal so it could still be worth considering, but it’s recommended to take mortgage advice to make sure the finances stack up in your favour.

3. Your loan-to-value has decreased

In a similar vein to the above, but if your loan-to-value (LTV) has decreased, you’ll likely find that you have access to cheaper mortgage rates – it typically goes that the lower the LTV, the lower the mortgage rate.

Your LTV can decrease over time as you pay off your mortgage balance and can further reduce if your home increases in value, which means the rates available to you now may be lower than when you first took out your mortgage as you will likely be in a lower LTV bracket. But again, it’s important to check that the money you’ll save by remortgaging will outweigh any additional costs involved, so make sure to seek advice if you’re unsure.

4. You want to overpay your mortgage

A pay rise, inheriting a large sum of money or paying off a large debt can all lead to an improvement in your financial situation, in which case you may have more money to pay off your mortgage each month. However, it’s important to check that your current mortgage can accept overpayments, and if so how much will be permitted (typically, fixed rate deals will permit overpayments of up to 10% annually).

If this is not possible and you’re comfortable with any early redemption charges then you could look for a new mortgage deal that allows it, and you could even consider reducing your mortgage term. This will increase your monthly payments but will save you money in total interest costs, so if you’ve got regular additional income, this could be a great way to help you pay off your mortgage sooner.

5. Your current lender doesn’t meet your requirements

If your current lender doesn’t meet your requirements for any reason – perhaps their customer service is sub-par, or you want a mortgage with more flexible features – it may be time to consider a switch. You may be better to do this when your current deal comes to an end as at this time there’s no obligation to stay put, and you won’t face any early repayment penalties.

However, if you’re really unhappy you could consider switching sooner, again making sure that moving won’t impact you financially. It’s often best seeking suitable advice to ensure you’re making the right decision.

When not to change mortgage lender

Although switching to a new lender can be beneficial, there are also some cases where it’d be better to stick with your current provider. These include:

1. You may need to pay an early repayment fee

It can be costly to leave a fixed rate deal before the term has ended, as most fixed mortgages will charge hefty early repayment fees. In some cases, leaving your deal early will work in your favour – especially if rates have dropped significantly since you started your original deal – but it can often be better to wait for it to end before switching, particularly if you only have a short time left on the deal. Either way, a mortgage broker can help you work out if there are savings to be made and if these are relevant to you.

2. You don’t have much left to pay on your mortgage

If you only owe a small amount on your mortgage (typically around £50,000 or less), you may find it difficult to switch to a new lender, and the costs involved in doing so could outweigh any benefits. If you want to try to find a better deal then you may want to talk with a mortgage broker.

3. You are in negative equity

If your property loses value, you could find yourself in a higher LTV bracket – or even worse, in negative equity, which is where you owe more than your property is worth.

If your current mortgage deal is still running it’s unlikely that switching will be a better financial result for you, but if you’re coming to the end of your deal it’s still worth comparing mortgages to avoid reverting to your lender’s SVR. However, it may not even be possible to switch – it can be difficult for those in negative equity to remortgage, so speaking to a mortgage adviser is recommended.

4. You’ve had recent financial issues

If you’ve been struggling financially, it’s best not to try to switch lenders until you’re more stable. Doing so means you’ll have to go through a mortgage interview and fresh affordability checks, and if you’ve been under financial pressure, there’s the risk that you’ll be rejected.

This could impact your credit score and make it harder to be approved in the future, so if you can afford to, it’s probably best to stay put. However, you should always seek advice if you’re struggling, either by seeing what your current lender can offer in terms of support, and/or speaking to a financial adviser.

5. Your current lender offers good deals

If your current lender offers good deals you may simply have no reason to switch! Just make sure you’re comparing the options thoroughly when you come to the end of your mortgage term. Our remortgage charts can help.

What to consider before switching mortgage provider

There’s a lot to think about before switching mortgage provider, and it won’t be the right decision for everyone. Here are a few things to bear in mind:

• Switching to a new lender will involve a new application, a fresh credit check and an updated property valuation. Make sure you’re comfortable with all of those things happening before you proceed.
• You always need to make sure that it’s worthwhile to switch. Consider your finances and make sure that any potential savings will be worth it, particularly if you’ll be facing early repayment charges (unless they can be outweighed by the potential savings).
• In a similar vein, make sure that you can comfortably afford to switch, and that you’ll ultimately be better off by doing so.
• You’ll need to check your credit score before applying for a new deal to make sure there are no nasty surprises and that your rating is good enough for a mortgage. If it isn’t, read our guide on how to improve it.
• Make sure that your property is still mortgageable. If it’s of unusual construction or has been heavily damaged, for example, it may be difficult to secure a new deal.
• Consider the additional fees involved in switching lender, over and above any potential early repayment charges. For example, you may face additional valuation and survey costs, legal fees and mortgage product fees, so always factor these into your calculations to make sure that switching will be worthwhile.

How to switch mortgage provider

Switching mortgage provider follows roughly the same process as applying for a brand new mortgage. You’ll first of all need to compare mortgages to find the best deal for your needs, then you can apply with the new lender, either directly or via your mortgage broker.

You’ll need to provide the necessary paperwork with your application (including your ID, proof of income, a current mortgage statement, etc), and the lender will conduct a property valuation. If everything runs smoothly they’ll make you a mortgage offer, and from there you can instruct your solicitor/conveyancer to handle the legal and search obligations.

On the completion date your new lender will pay off the mortgage with your previous lender (the funds will go through your conveyancer in order to do this) and the mortgage switch will be completed. The deeds will be updated to show the new lender’s charge and register the mortgage, and they’ll officially be your new provider.

How long does it take to switch lenders?

Switching mortgage lenders normally takes between four to eight weeks, but it can take longer if there are complications. Switching mortgage lenders usually takes longer than switching mortgage deals with your existing lender as the application process is often more in-depth than when simply changing deals with your current lender.

How much does it cost to switch mortgage lenders?

This can vary depending on the terms of both your current and new deals. The cost of switching could include:

• early exit fees from your current product
• application or product fees to secure your new mortgage rate
• valuation and legal fees

In some cases, lenders may offer free product, valuation and legal fees, but make sure to check the terms. If you choose to use a broker, you may need to pay them a fee as well.