Should you remortgage?

Rock bottom rates are great news for those looking to remortgage. So should you? Sarah Moore investigates.

With interest rates in the UK remaining at rock-bottom, and no sign of them rising this year (as yet), the cost of borrowing to buy a house has hit a nine-year low. The average rate on a two-year fixed-rate mortgage was 2.52% in February, down from 3.14% last year and the lowest level since 2007, according to comparison site

There is even the possibility that rates on two-year fixed-rate mortgages could go as low as under 1%, suggests Chris Pilling, head of Yorkshire Building Society. Meanwhile, the "lowest ever five-year fixed-rate mortgage is back", as HSBC brings back its 1.99% five-year fixed offering, says

That's all great news for anyone looking to remortgage or buy a property. And existing and prospective homeowners certainly seem to be taking advantage. Recent rule changes designed to cut down on risky mortgages being written resulted in a temporary slowdown in lending and property sales, but this seems to have been fairly short-lived.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Banks and building societies lent £18bn in mortgages in December 2015, down from November's £18.7bn, but a marked increase on the £14.7bn lent out in December 2014. Mortgage brokers said remortgagers were "particularly keen to get new deals on their loans to take advantage of low interest rates", says Tim Wallace in The Daily Telegraph.

But mortgage hunters do need to be careful to check the small print and do their sums before they rush out to trade in their existing loan, because borrowers are "being slapped with higher fees" as banks look to protect their profit margins, writes Wallace. The average fee on a fixed-term loan has risen by 4.2% over the past year, to £964.

The increase in the average mortgage fee "clearly shows that some of these headline-grabbing rates are being compensated for elsewhere", points out Charlotte Nelson from, labelling the highest fees "nothing sort of shocking". Some high-value loans are coming with fees of up to £7,499, while those wanting to take advantage of the aforementioned HSBC five-year deal have to pay £1,995 to secure it.

As Nelson notes, the cost of administering a loan doesn't vary too much from case to case, so it is difficult to see why one loan, even a higher-value one, would incur such enormous charges. As a result, it's worth weighing up whether your deal is worth paying the fee for if you are only remortgaging for a small amount (and so the fee is a larger proportion of the total loan), then it might make more sense to take on a marginally higher rate for a lower fee.

To secure the best deals you'll need a deposit or equity of 35%-40%. If you have this, Yorkshire offers a 1.14% two-year loan with fees of £1,475. Over five-years, HSBC is best, at 1.99%. And if you want to lock in for ten years,First Direct will lend at 2.89%. If you have a 10% deposit, HSBC will do two-years on 2.09%. Whichever you choose, just ensure you know what you're getting into and what your medium-term plans are.

A two-year fix on low rates might seem a great idea now, but it might look different when you reach the end of the term. Though few expect it right now, interest rates could have risen in two years' time, meaning that you may find yourself having to remortgage at a significantly higher rate. It's worth considering how much breathing room you'd have if your mortgage rate was to rise to 5% or 6%, for example.

Sarah is MoneyWeek's investment editor. She graduated from the University of Southampton with a BA in English and History, before going on to complete a graduate diploma in law at the College of Law in Guildford. She joined MoneyWeek in 2014 and writes on funds, personal finance, pensions and property.