If you are an independent professional looking to manage your mortgage in the UK’s rate environment, you have some serious decisions to make to avoid wasting a lot of time and money. You may come across two options: remortgaging or opting for a rate switch with your current mortgage lender.
Both options can help you secure a better interest rate and potentially save money on your monthly repayments. They can also do the opposite if you make a poor decision, usually because you have run out of time before the painful standard variable rate kicks in.
So, what are the options and what should you do? Firstly, it is important that you understand the terms and what the processes entail, as they are very different.
- Remortgaging involves switching your mortgage to a new lender.
- A rate switch, also known as a “product transfer”, allows you to change to a different product offered by your existing lender.
Remortgage benefits
One of the key advantages of remortgaging is that it gives you access to the wider market and allows you to explore different lenders and their competitive rates. This can be particularly beneficial if your current mortgage deal has expired or if you're on a standard variable rate (SVR) which tends to be higher than fixed-rate deals.
If you use an independent mortgage broker who understands your unique needs as a contractor, locum, or a self-employed professional; you are likely to be able to use your gross income to alleviate affordability concerns. This will maximise your chances of getting a really good deal with a different lender. A remortgage is a brand-new application and is subject to full underwriting. It is not a given that the mortgage will be approved.
Rate switch benefits
On the other hand, opting for a rate switch with your current lender can offer convenience and simplicity. It eliminates the need for extensive paperwork, underwriting and property valuations associated with remortgaging. Additionally, it may involve fewer costs, such as lender arrangement fees.
The key benefits are speed and the overwhelming chances of success versus a remortgage. The down side is a limited set of products that will not usually be the best available in the market.
So what's the best option
Ultimately, whether you choose to remortgage or opt for a rate switch will depend on various factors including current market conditions, base rates set by the Bank of England, your long-term financial goals, and personal preferences regarding stability versus flexibility in mortgage payments.
This is where your adviser will demonstrate their worth. The vital action is to engage with the right professional at least six months prior to expiry of the current rate. If the current mortgage completed two to five years ago, it is inevitable that any new deal applied for is going to be more expensive. The role of the new adviser is to secure the best possible deal, whether that is from the current lender or from a new one. They should then review options for the borrower regularly until the time that it is time to complete, ensuring the best outcome is achieved. Acting early means avoiding having to opt for a high rate due to time pressures.
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