With many mortgages coming up for renewal, experts are urging homeowners to plan ahead to ensure they aren’t left paying “hundreds or thousands” of pounds more than they could be.
David Hollingworth, associate director of communications at fee-free mortgage broker L&C Mortgages, said: “With mortgages being one of the largest financial commitments many people face in their lifetime, it is important to watch out for potential pitfalls that could increase your monthly repayments.”
One key pitfall that many may get caught in is sticking with their current lender, especially if they have been with them for years.
Mr Hollingworth said: “Sticking with your existing lender and moving to a cheaper product on offer at the end of your current deal, could result in you paying hundreds or thousands more, in the long run.
“Even if you aren’t using a broker, it is important to shop around to ensure that you are finding the best deal, instead of just switching to the one that is most convenient.”
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Mr Hollingworth also pointed out that switching to a different lender can also be “beneficial” if a person believes their home has significantly increased in value since they last took out a mortgage.
He explained: “If your home is worth more than before, this can lower your Loan To Value (LTV), which 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 lower rates of interest on your monthly repayments when it comes to remortgaging.”
Another common mistake people make when it comes to renewing their mortgage is leaving it until their current deal ends before looking for a new one.
However, this can result in homeowners paying “double” what they may have previously been paying, making it key to plan well in advance.
Mr Hollingworth said: “Whether you have taken out a fixed-rate, tracker or discount mortgage, your lender is likely to automatically switch you to their Standard Variable Rate (SVR) at the end of your introductory deal, which for most people tends to be two to five years.
“Mortgage lenders set their own SVR, which isn’t directly pegged to the Bank of England Base Rate and tends to be much higher than rates you might find on fixed-rate, tracker or discount mortgages.
“The interest you pay with an SVR can often be double what you might have previously been paying for your fixed-rate repayments.”
To avoid this, Mr Hollingworth said it is best to start thinking about new mortgage deals around six months before a person’s current rate is about to end. This will allow time to line up a new deal and prevent being moved onto a lender’s SVR.
He added: “If you are staying with your current lender, it can take around a month for them to process your application. But if you are switching lenders, this could take around three months, so it’s best not to leave this until the last minute.”
Finally, Mr Hollingworth suggests people should “always ask” a mortgage broker how they are getting paid, in order to avoid facing any hidden costs.
He said: “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.
“Brokers will receive a commission called a ‘procuration fee’ of typically around 0.35 percent of the mortgage amount, which 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 is important to have a look around at what deals are available beforehand.”
He added: “Many brokers will also charge you a fee of around 0.3 to one percent of the value of the loan, in addition to receiving the procuration fee. If so, it may be worth asking why this is the case or considering finding a different broker who doesn’t charge a fee for their service.”
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