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The remortgage 'trigger point'
by Sarah Modlock
What would make something too expensive? It depends how much you needed it and what the other options were. If the 24-hour shop sells a much-needed pint of milk for twice the milkman's price then you might resent paying up but it would be worth it this once for your cup of tea. With non-essential purchases like DVDs or perfume, you may wait until the product comes down in price or is on special offer. But what about your biggest financial commitment? You may congratulate yourself on saving a few pounds here and there on bargains but your mortgage is a obvious place to start saving. So how much would your monthly bill need to increase by before you would consider remortgaging?
Apparently, the average UK borrower would only remortgage if they could save at least £93 a month according to new research from high street broker Bradford & Bingley. This 'trigger point' reflects homeowners' desire to save money on their monthly repayments, but only if the price is right. However, with more than a quarter of borrowers content to languish on their lender's standard variable rate (SVR) it is clear that many remortgaging misconceptions persist.
The research, conducted by NOP, reveals that almost a third of borrowers are put off remortgaging because they think it takes a lot of time and hassle. A similar number think it would be expensive to switch deals. A fifth of homeowners don't know where to start and 14% didn't know they could remortgage unless they moved house. One in five borrowers have simply never considered a fresh deal. These myths and misconceptions are costing us a fortune. Bradford & Bingley reveals that some 3.3 million mortgage holders could potentially save around £6bn a year in mortgage payments if they switched from their current SVR rate onto a market-leading deal.
Switch from your stale SVR
'Homeowners are increasingly recognising the savings they can make on their monthly repayments by remortgaging onto a competitive deal, with £93 being revealed as the all important trigger point,' comments David Bitner, head of mortgages for Bradford & Bingley. Despite this growing awareness, however, there still exists some crucial misconceptions. One of the biggest factors affecting homeowners' propensity to remortgage is the belief that the process is too time consuming and taxing. In reality though, once you've shopped around or visited a mortgage broker to find the best deal, the process is pretty simple and hassle-free and takes typically 4 to 6 weeks,' he explains.
'Another aspect affecting homeowners is the assumed cost,' says Bitner. 'While it is true that many lenders have increased their arrangement and exit fees over the last couple of years there are still a number of competitive deals available. There are those with free legals and free valuation fees, some with added benefits such as cashbacks, meaning, in many cases, the savings that can be achieved through remortgaging far exceed the costs,' he adds.
This example highlights the potential savings you could make: a homeowner with a £100k mortgage on an average SVR could save around £150 a month (£1,800 a year) by remortgaging to a market-leading deal.
Think carefully about what you would like to get out of a new mortgage deal - you may want greater flexibility in addition to better value. Then find out whether you are tied into any fixed term deals or will have to pay a penalty if you switch. You may also want to ask your existing lender whether they want to provide a better deal rather than let you take your business elsewhere. Once you know what their best offer is, you will have something to compare to other deals.
David Bitner acknowledges that remortgaging may not be worthwhile in every case and says that some borrowers with lower balances may not benefit from switching. However, in most other cases he believes it makes complete financial sense. To prove this, Bradford & Bingley has launched a remortgage challenge with a difference - open to all main resident borrowers no matter who your home loan is with. If you want to remortgage then Bradford & Bingley will better your existing lender's offer or pay you £100. The challenge aims to help borrowers get the best deal they can by saving money over the term of their deal through lower arrangement fees and competitive interest rates. Borrowers wanting more information can arrange an appointment here or pop into their nearest Bradford & Bingley branch.
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