Don’t be panicked into re-mortgaging – do sums before switching lender

Mortgage borrowers should not be panicked into switching their home loans because of the recent base rate rise, advises online financial comparison analyst Moneynet.co.uk.

While industry activity suggests homeowners are looking to re-mortgage to fixed rate deals to protect against predicted further rises in the cost of borrowing, Richard Brown, chief executive of online financial analyst Moneynet.co.uk, warned of the raft of additional costs involved in switching mortgage – and the current uncertainty means that many lenders are still to show their hand and announce their new rates.

“Mortgage providers rather like base rate increases as they know an upwards move will trigger a stampede for fixed rate solutions to protect against further increases,” said Brown.

“But this could be a case of closing the stable door after the horse has long since bolted, as many lenders have either withdrawn or sold out of top deals.

“And by the time most borrowers have paid the various exit penalties, arrangement fees and ancillary professional charges, the new deal has to be very seductive to make a move worthwhile.”

Given the charges involved – not to mention the hassle factor – Brown recommends that borrowers speak to their current lender to seek out a new deal before thinking about moving.

“Over recent months we have seen a shift in lenders’ attitudes to their borrowers which means that many lenders are now trying harder to retain their existing customers,” he added. “It seems they have suddenly woken up to the fact that it is costly to constantly chase new customers whilst watching their loyal existing borrowers being welcomed with open arms by a competitor.”

Coupled with the fact that arrangement fees are at an all time high with lenders charging as much as 2.5% of the mortgage amount up front and ever-increasing exit charges, this means that many borrowers are better off staying with their existing lender, even if the deal on offer is not the best on the market.

“Borrowers determined to switch should firstly estimate the likely costs involved in moving the mortgage,” said Brown. “These should include lenders’ arrangement fees, legal and valuation fees as well as exit fees and redemption penalties from their existing lender. Only if these sums really stack up should you consider moving to a new lender.”