Remortgaging: should you stick with your lender or switch?

More than 1.4 million households in the UK are facing interest rate rises this year when their existing fixed-rate deals come to an end and they have to remortgage, said the Office for National Statistics.

That’s because interest rates and mortgage pricing will have increased since those borrowers took out their deals.

If you’re facing a remortgage deadline, there are several factors to take into account when looking for the best offers.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

What happens when a mortgage deal ends?

The end of a mortgage deal gives homeowners a chance to lock in a new interest rate and avoid steep increases in their monthly repayments.

Once a mortgage deal ends the rate usually switches to a lender’s default or out-of-contract pricing. This is known as the standard variable rate (SVR) and, according to Unbiased, will “almost always” be higher than the fixed rate you were paying.

Bank of England (BoE) data shows the average rate on a two-year fix is currently 2.1%, while Moneyfacts data shows the average SVR as of February 2023 was more than three times higher, at 6.84%. This would take the monthly repayments on a 25-year £200,000 mortgage from £857 to £1,393.

The SVR can also change at any time and by any amount, warned Unbiased, making it hard to budget for the long term, “since you don’t know by how much your mortgage repayments may rise in months and years to come”.

This is why most homeowners look for a new deal.

How does a remortgage work?

A remortgage is when a homeowner takes out a new mortgage on their own property, either to replace an existing mortgage, or to borrow money against a property, explained MoneySavingExpert.

“Normally homeowners remortgage in order to save money,” the financial website said, “however you might also do it to protect yourself against rising interest rates” as you can lock in a deal before pricing gets more expensive.

You can either switch to a different deal with your current lender, or move your existing home loan to a new deal with another lender.

Switching to a new interest rate with your current lender is known as a product transfer, said Nerdwallet, and “not much will change” other than your monthly payments.

If you choose to switch lenders when you remortgage, the website said, the new lender “effectively pays off your old mortgage and your debt transfers over to them”. This process will come with admin fees, which are worth factoring in to your calculations, the website added.

How to find the best remortgage deal

It is best to remortgage at the end of your current fixed-rate deal, said MoneySupermarket, “as most lenders will charge you extra fees if you break your mortgage deal early”.

For example, if you have a two-year fixed rate you will need to wait until the period ends to switch, or you may face an early repayment charge (ERC). You can start shopping around early, though.

“You should start the planning process around six months before your fixed rate ends,” said Unbiased. Most lenders will let you lock in a rate three months in advance of your first payment, the financial website added, but “you may miss out on a cheaper deal later, so be sure to do your research and seek advice”.

Sticking with a new rate offered by your current lender could be faster and easier, added Nuts About Money, as it “knows first-hand how good you are at making your monthly repayments” and already carried out credit checks and approved you for a mortgage in the past

“It’s true that you ‘could’ get a better deal by staying with your current lender,” Paul Neal, director of mortgages and equity release at Missing Element Mortgage Services, told Financial Reporter, but there’s no guarantee.

Indeed, Which? warns that “with dozens of lenders competing to offer the best mortgage deals, it’s highly unlikely that your current one will give you the very cheapest rate”.

The “safest option” is to seek advice from a broker, who can find a deal that fits your needs, Neal added.

Marc Shoffman is an award-winning freelance journalist, specialising in business, property and personal finance. He has a master’s degree in financial journalism from City University and has previously written for FTAdviser, ThisIsMoney, The Mail on Sunday and MoneyWeek.