We have seen the growth in recent years, of ‘switching utility providers’ such as ‘Uswitch’ and ‘Bulb’ with increased advertising announcing the merits of easy utility company switching to those with lower fuel tariffs.
Ofgem, the Government watchdog of energy prices, explain how energy prices can be capped and how some fixed term energy tariffs chosen by consumers, are not capped. Giving consumers the information they need for switching.
Since January 2019, caps have been used to protect consumers who haven’t chosen a particular tariff which has then gone into a default tariff, whose prices had been higher and variable.
This government intervention has been pointed out as one of the reasons why energy provider Npower, is restructuring its UK business with a possible loss of 4,500 jobs.
Nevertheless, customers continue to switch energy providers in order to save money and have benefited from lower fuel prices.
It follows that similarly, monies can be saved if mortgages are switched once their ‘fixed rate’ periods ended, before they slide into a default rate or a Standard Variable Rate (SVR).
SVRs can vary with the lowest currently being around 4% and the highest, around 6.3%. If your initial product is one of the most competitive rates on the market, it will normally mean a substantial increase in repayments once the fixed product ends. More specialist or adverse cases normally translate to a higher rate during the fixed rate stage, so the jump to SVR at the end of the product doesn’t seem as severe. The difference of 2% on an average mortgage loan of £132,633 (finder.com) could reflect an extra £162 in monthly payments, based on a 30-year term.
There is the option to fix mortgage product payments for 2, 3, 5 and 10 years. Most mortgage providers don’t have any early repayment charges to leave, once they reach the end of the fixed period (maybe a small admin charge). Of course, whilst it is good to fix a low rate product for several years, the interest rate, based on the Bank of England base rate, may decrease, as well as increase.
There are also mortgage tracker and flexi products that have no early repayment charges at all, meaning you can come out at any time. The question is, would it be better to have a fixed rate of interest for a minimum amount of years so that a mortgage product can be switched with minimum financial risk or take a gamble that interest rates will definitely be raised, so, therefore, fix for a longer period?
How simple, then, is it, to switch products? These days lenders make it very easy to switch products. If you stay with your existing lender you can normally change the product over to another, almost instantly. If you wish to approach a new lender, you can actually do this up to 6 months early, before your original mortgage rates end. New lenders will often try and attract new customers by offering free valuations and free conveyancing (which normally means little or no up-front costs to re-mortgage).
There are many people who can’t face the prospect and the stress of going through the whole mortgage application again. Their situations may have changed, and they may not wish to ‘rock the boat’ of the terms of their original mortgage. It is important, however, to remember that the information you give you mortgage broker is confidential.
If a flexi mortgage product is chosen, it could be possible to ‘overpay’ monthly repayments in order to lower the term the mortgage is outstanding for, rather than staying with an original mortgage product that has defaulted into a SVR.
In conclusion, monies can be saved by switching mortgage products, especially once a fixed rate period ends. Saved monies could then be used to decrease the mortgage term. It is worth keeping in touch with your original Mortgage Broker. The mortgage brokers at The Mortgage Library, for example, will run a check of your loan situation if you want them to and will advise you of the best action to take, in order to save you money.
What must be remembered, is that whilst there are no monetary penalties for the odd missed repayment, there could be serious difficulties switching your mortgage product to the very best deal, when you want to, should you get behind with them.