Q&A: Moving your mortgage

Thousands of people switch mortgage provider each year, some to save money, others as a means to borrow more cash.

What factors should you bear in mind when switching mortgage providers.

Can remortgaging really save money?

It depends.

It is estimated that more than half of all borrowers are continuing to pay over the odds for their mortgage each month.

Usually these people are paying the lender's standard variable mortgage rate. There will be lower rates available from other providers.

But this is not the whole story.

In recent years, banks and building societies have been hiking mortgage fees to subsidise attractive headline interest rates.

So called mortgage arrangement fees have sky-rocketed as have charges for redeeming a mortgage.

As a result, you have to do the sums to make sure that what you gain through switching provider - a lower rate of interest - is not lost through higher charges.

That sounds very complex, what help is available?

There are financial professionals who can advise you. Some of these are employed by lenders and may only be able to recommend the products of one mortgage provider or a small panel of providers.

A financial adviser may not be the best route to a future mortgage deal.

But there are a host of independent mortgage brokers who are free to advise you from the whole of the mortgage market.

However, be aware that they may take commission from the provider they recommend to you.

You may also have to pay a fee for independent mortgage advice.

It is also wise to do your own research to compare the rates that a lender or broker is offering you.


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What is remortgaging?

Remortgaging is when a borrower who already has a home loan with one lender switches it to another one.
The practice was relatively rare until 15 years ago, when lenders mostly offered only basic variants of variable rates.
The assumption was that borrowers would simply stick with their existing mortgage for its full duration.
Competitive market
But in the early 1990s, as property prices fell and the market was in the doldrums, mortgages became much more competitive as lenders realised that the only way to win new business was to battle for each other’s existing borrowers.
Thereafter, lenders also found themselves competing for business among new homebuyers, offering ever more sophisticated deals.
Initially, they tried to keep their borrowers by tying them to heavy redemption penalties, sometimes stretching for years after the special deals that first attracted them came to an end.
Today that practice is largely non-existent, with most penalties applying only for the lifetime of the deal itself.
Meanwhile, some 40% or more of all new loans in the UK each month are remortgages.

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