I’m a mortgage expert – five easy mistakes homeowners make when remortgaging and how to avoid them

MORE than one million households will be looking to remortgage in the next year – and there are some mistakes they need to be wary of.

If your current mortgage deal is coming to an end, you might be thinking about switching to ensure you continue to get the best offer.

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Mortgage rates have rocketed since many last locked into a fixed-rate deal, with 12 consecutive base rate increases from the Bank of England (BoE) since December 2021.

Borrowing costs have surged and lenders are hiking their rates again.

Around 1.6 million UK families will be remortgaging over the next 12 months, according to think tank the Resolution Foundation.

There’s lots to consider when you come to take out a new deal and given the tumultuous conditions of the market at the moment it’s even more important to be as clued up as possible.

We spoke to David Hollingworth at broker L&C Mortgages, about the most common pitfalls homeowners tend to fall into so you can avoid them.

Mortgage holders are likely “heading into another period of volatility” after the mini-Budget last year sent rates soaring, he said.

The BoE likely to hike rates again on June 22 to tackle inflation, which remains persistently higher than expected.

This has resulted in a spike in market rates which has fed through to new fixed rate mortgages.

Deals have already edged up and some are being withdrawn rapidly and replaced with higher rates.

He said: “As a result it is all the more important that borrowers keep their mortgage rate under close review.

“Rates are already a lot higher than recent years so even those still in a low fixed rate will want to prepare for the end of the current deal and keep an eye on rate movement.”

With the cost of living also high getting the most of your mortgage will be crucial in managing monthly budgeting.

Here are the five mistakes to avoid if you’re looking to remortgage soon.

Waiting until your current deal ends before remortgaging

One of the most common mistakes a homeowner can make is waiting until the last minute to take out a new deal.

Whether you’re on a fixed-rate, tracker or discount mortgage, your lender is likely to automatically switch you to its standard variable rate (SVR) at the end of your deal.

Lenders set their own SVR so they can vary depending on which one you are with, but they often tend to be much higher than other rates.

David said: “The interest you pay with an SVR can often be double what you might have previously been paying for your fixed-rate repayments.

“It is best to start thinking about new mortgage deals around six months before your current rate is about to end, to allow time to line up a new deal and prevent being moved onto your lender’s SVR.”

If you’re staying with your current lender, it can take around a month for it to process your application.

Plus if you’re switching lender this could take around three months, so it’s best not to leave it until the last minute.

This also gives you time to get everything together and potentially lock in a lower rate.

If you do find rates are lower by the time it ends, you don’t have to take the rate you locked in at earlier though.

David said: “If you start earlier then you can still switch to lower rates if they become available and can even switch lenders.

“There’s a temptation to do nothing because you don’t know what to do but doing something means you have a deal to fall back on – if rates carry on climbing then at least you’ll have something secured – mortgage offers are largely valid for six months.”

Remaining loyal to your existing lender

For many people it can be tempting to stick with their current lender, especially if they have been with them for years..

But David warns that sticking with it, even if it’s a cheaper product than the SVR, could result in you paying hundreds or thousands more in the long run.

He said: “Even if you aren’t using a broker, it’s important to shop around to ensure that you are finding the best deal, instead of just switching to the one that is most convenient.”

Switching to a different lender can also be beneficial if you believe your home has significantly increased in value since you took out your original mortgage.

If your home is worth more than before, this can lower your Loan To Value (LTV).

This is the ratio of the outstanding mortgage compared to your home’s current market value.

A lower percentage LTV can result in lenders offering you better rates of interest and lower monthly repayments when it comes to remortgaging.

This is where an advisors opinion could come in handy, as even if sticking is the best option for you, you’ll have peace of mind this is the case.

If you opt not to use a broker, make sure to compare rates using comparison sites like MoneySupermarket, USwitch or Comparethemarket to see what rates may be available to you.

Applying for credit before remortgaging

You might be tempted to put your credit score to the back of your mind once you’ve secured your first or current loan.

But this is another mistake that could impact your options when you look for a new deal.

David said: “Having credit and repaying it on time is a great way to build a healthy credit score and can help get you on the property ladder as a first-time buyer or open up lower rates if you are looking to remortgage.

“However, be wary of taking out multiple lines of credit in the months prior to remortgaging, as this can lower your credit score and ultimately limit your ability to access lower mortgage rates.”

If you’re regularly applying for credit within a short period of time, mortgage lenders will likely assume you’re overly reliant on credit and could deem you to be higher risk.

It’s important to remember that every application you make records a “hard search” on your credit report, which is visible to lenders when they assess your ability to pay back your loan.

“Lenders are likely to offer you higher rates of interest if they feel you are less likely to be able to pay back your mortgage,” David said.

“Therefore, it’s a good idea to space out credit applications, to no more than one every three months, and to not take out a credit card right before remortgaging.”

Things like buy now, pay later and not signing up to the electoral roll can also affect your score.

Forgetting hidden fees

While it might be enticing to chase the cheapest rates, it’s worth bearing in mind additional fees that can crop up when remortgaging.

David said: “Some lenders will offer low interest rates, but then have high arrangement fees, which are used by the lender to pay for admin costs of the new mortgage.”

Other potential fees to bear in mind when remortgaging include a booking fee which some lenders will charge to reserve a particular mortgage.

A valuation fee is sometimes included for free within a remortgage package and covers the cost of valuing your home.

Conveyancing fees can be charged when a solicitor or conveyancer is required to transfer your existing mortgage from the old lender to the new lender.

An early repayment charge is applied if you leave your current mortgage deal before the end of its term, or if you overpay on your mortgage above a certain amount.

These can be pretty substantial at up to 3% but it depends on the deal.

With all of these fees it’s important to thoroughly check the terms and conditions of your deal, if you think something doesn’t look right make sure to query them with the lender.

Not asking how your broker is getting paid

Using a mortgage broker to help you should make it much easier to find the best deal, but you should always ask them how they are getting paid.

That’s because brokers will receive a commission called a “procuration fee” of typically around 0.35% of the mortgage amount.

David said: “This comes directly from the mortgage lender, rather than your own pocket.

“A broker should always be trying to find you the best deal, but it’s important to have a look around at what deals are available beforehand.”

Many brokers will also charge you another fee of around 0.3% – 1% of the value of the loan, in addition to receiving the commission fee.

This can be pretty hefty, for example on a £200,000 mortgage, 1% is £2,000.

It may be worth asking why your advisor is charging the fee or consider finding a different broker who doesn’t charge for their service to save cash.

David said you should also be checking that they’re covering the whole market, some may just use a small selection – you can check easily with them what they’re covering just by asking.

Here are six things homeowners should be looking to do as they come to remortgage.

Plus, our Business dditor weighs in on the latest mortgage market news.

Do you have a money problem that needs sorting? Get in touch by emailing [email protected]