Should I change lender or stick to my current one?
For many years, getting the very best mortgage deal has meant switching to a new lender. Remortgaging to a new bank or building society in order to take advantage of a competitive fixed or variable rate deal has been commonplace as borrowers have looked to save money on their repayments.
Recently, however, an increasing number of lenders have begun to offer 'loyalty' deals to try and encourage borrowers to remain once their existing deal has expired. So, should you stay with your current lender or switch? Our guide tells you everything you need to know.
Criteria and your property value could be key issues
Two of the major factors that will determine whether you are able to switch lender are:
- The valuation of your property
- Your income, outgoings and personal circumstances
If your property has fallen in value since you took out your mortgage you may find it harder to get a new home loan with another lender. With less equity you may struggle to find a competitive deal.
You may also find it harder to switch lenders if your income, outgoings or credit rating have changed since you took out your mortgage. Tougher mortgage rules introduced in 2014 mean that banks and building societies have to carry out more affordability checks than before and so it may now be harder to get the mortgage you need.
Your existing lender is allowed to offer you a better deal without you having to jump through all of these hoops. So, if your earnings have fallen, your outgoings have increased or you have recently become self-employed, staying with your current lender may be a better choice.
Whatever you choose, be aware of the costs
If you decide to remortgage, there is a strong likelihood that you will incur some charges. At the very least, the new lender will want a valuation of your property while there will be some legal costs incurred as part of the remortgage process. Some lenders will meet these fees as an incentive to switch, although you may pay a higher interest rate.
You may also have to pay an arrangement or booking fee for the specific product you choose. Most fixed or variable rate deals have an associated fee and while this can often be added to the mortgage you should take it into account when choosing the right deal for you.
Even if there are charges involved, you may find that you save a significant sum by remortgaging onto a lower rate. This is particularly true if you have a larger mortgage. An independent mortgage broker will normally crunch the numbers and work out which option is better for you.
Bear in mind that if you remain with your current lender there may also be fees. Switching to another fixed or discounted rate deal may mean you pay an arrangement fee, even if you aren't switching banks.
Sticking with your current lender may be less hassle
Even the most straightforward remortgage will involve you completing some application forms and some legal paperwork. You may also have to attend a mortgage interview with a bank or with a broker.
This time may well be worth it if you save a significant sum on your repayments. However, getting a better deal with your current lender may mean nothing more than a telephone call. You need to weigh up whether the effort in remortgaging is worth it to you.