Remortgaging – Is It Still Worthwhile?

Navigating the Mortgage Market: The Smart Approach to Switching Lenders

In the competitive world of mortgage lending, the term “Rate Tart” is often used to describe individuals who switch lenders to take advantage of lower interest rates. However, a more fitting term might be “Shrewd Shopper,” as it highlights the sensible approach of seeking the best deal available. After all, a pound from one lender is just as valuable as a pound from another.

Understanding the Market Dynamics

The mortgage market thrives on competition, with lenders often using price as their primary competitive tool. This price competition benefits consumers, providing an opportunity to secure more favorable terms by switching lenders. Those who take advantage of these opportunities might be labeled in less flattering terms, but they often end up financially better off.

The Reality of Lender Responses

In response to the trend of mortgage switching, some lenders have adjusted their strategies. To deter customers from moving, they have increased up-front charges or enhanced their customer retention programs. While well-crafted retention programs can be effective, higher up-front charges may deter customers and potentially reduce a lender’s market share, even if it improves profit margins. It seems that positive incentives (carrots) are more effective than punitive measures (sticks) in retaining customers.

Assessing the True Cost of Remortgaging

When considering remortgaging, it is essential to evaluate all associated costs to ensure that the move is financially beneficial:

1. Arrangement Fees:

   • Example: Birmingham Midshires offers a 3.89% two-year fixed rate, but with an arrangement fee of £1,499. When amortized over two years, this fee effectively adds approximately 0.75% to the interest rate on a £100,000 mortgage.

2. Additional Costs:

   • Valuation Fee: Typically around £250 for a £100,000 mortgage.

   • Arrangement Fee: Average of £500.

   • Booking Fee: Approximately £50.

   • Legal Fees: Around £350 for switching a £100,000 mortgage.

   • Early Redemption Penalties: Fees charged for exiting your current mortgage early.

Negotiating with Your Current Lender

Before committing to a new mortgage, contact your current lender to discuss your intention to move for a better deal. Often, lenders assume that borrowers will prefer to stay if offered a reasonably attractive deal. By expressing your willingness to switch, you may prompt your lender to offer a more competitive rate or package to retain your business.

Making an Informed Decision

After assessing the costs of remortgaging and obtaining quotes from both new and existing lenders, you can make a well-informed decision. Ensure that the overall savings outweigh the costs associated with switching.

For additional support in navigating the mortgage market, Brokers Online is a leading finance website in the UK that provides access to various financial services, including remortgages. For further information on whether switching mortgages is right for you, explore resources available through reputable financial service providers.

By carefully considering the costs and benefits of remortgaging, and leveraging the competitive nature of the mortgage market, you can make strategic decisions that maximize your financial advantage.