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 of savings by not switching your mortgage to a new lender. 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. However, 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.

Here are five reasons you might consider switching your mortgage lender.

Often the initial rate you pay for a mortgage is set for a period of time that once expired, reverts to the mortgage provider’s SVR. The exact period of the initial rate will vary depending on the deal, for example a two-year fixed mortgage rate will either last for two years from the date you take out the mortgage or on a date of two years or more set by the lender. Discounted variable rates can also be for a set period of time.
If you signed up for a mortgage with a set time period for the initial rate, then once this ends you are likely to be placed onto a higher SVR and your mortgage repayments will go up as a result. Lenders should send you notification that your initial rate is coming to an end, but it is worth noting down the date yourself as well. You should allow at least three months to start comparing current mortgage deals.

When you compare mortgage deals you will often find the lower rates are with the deals that require a lower LTV. Your LTV can decrease over time as you pay off your mortgage balance and can further reduce if your home also increases in value. Therefore, 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.

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 for your mortgage each month. It is important to check that your current mortgage can accept overpayments before doing this. If this is not possible and you are comfortable with any early redemption payments (if applicable) then you could look for a new mortgage deal and reduce your mortgage term. Reducing your mortgage term will increase your mortgage payments but save you money in total interest costs.

During financially uncertain times mortgage borrowers often want to lock their mortgage into a fixed-rate deal as it gives them certainty of the cost of their mortgage each month. Borrowers on variable rate mortgages may decide they do not want the risk of an increase in the Bank of England base rate and consequently a potential increase in their mortgage.

When making this type of decision it is important you take mortgage advice to make sure the finances do stack up in your favour.

When mortgage rates consistently drop over time, then you may find your current mortgage rate is less competitive than it once was. If the reduction in rate is great enough this can still outweigh the impact of early redemption fees and the costs of obtaining a new mortgage deal. 

Mortgage brokers remove a lot of the paperwork and hassle of getting a mortgage, as well as helping you access exclusive products and rates that aren’t available to the public. Mortgage brokers are regulated by the Financial Conduct Authority (FCA) and are required to pass specific qualifications before they can give you advice.

Speak to a mortgage broker today

Here are three reasons to stay with your mortgage lender:

If you only owe a small amount on your mortgage such as £50,000 or less, you may struggle to find a mortgage with a new lender. If you want to try and find a better deal then you should talk with a mortgage broker.

If your property loses value, you could find yourself in a higher LTV bracket or even worse negative equity which is where you owe more than your property is worth. If your current mortgage deal is still running, then it is not likely that switching will be a better financial result for you – unless rates have dropped materially, and the higher LTV rates are lower than your current deal. For those in negative equity, it may be difficult to find a lender to switch to and speaking to a mortgage adviser is recommended. If your LTV has worsened and you are at the end of your deal, then comparing mortgages is still a worthwhile rather than reverting to your lender’s SVR.

It can be costly to leave a fixed-term deal before the term has ended as most fixed mortgage deals will charge an early exit fee. In some cases, leaving your fixed rate early will work in your favour, especially if rates have dropped since you started your original deal. However, it may also be better if you have a short time left on your fixed deal, to wait for it to end before switching. Either way, a mortgage broker can help you work out if there are savings to be made and if these are relevant to you.

Our mortgage calculator helps you to see how much your mortgage might cost you each month.

Our how much can I borrow calculator gives you a range of how much a lender might consider lending you under a mortgage. This calculation is only an indication only.