Should you Remortgage?

Remortgage rates, especially for existing homeowners with good credit histories and equity in their property, are plunging to "fabulous" new lows.

A succession of cuts from stronger lenders has pushed the cheapest five-year fixed rates to under 3.5 per cent. Four-year rates are under three per cent while two-year rates are now below 2.5 per cent.

"We are seeing a series of extremely keenly priced offers”, says Damian Gavin, Principal of Perfect Mortgage.

Such bargains are for borrowers with a minimum of 30 to 40 per cent equity. The rates are so low that homeowners locked into existing fixed-rate deals may profit by switching, even where penalties must be paid to their current lender.

For instance, competitive five-year fixed rates taken out in mid-2008 charged around 5.8%. Switching to a two-year rate of 2.5 per cent would save £425 a month on a £150,000 interest-only mortgage, amply covering the typical £3,000 penalty to leave the 2008 deal early.

Existing borrowers on standard variable rates should also consider remortgaging. After the 2008-2009 banking crisis, SVRs often represented good value, but this is less the case. Five-year fixes taken out in 2009, by which time rates had fallen to below five per cent, offer less opportunity for potential switchers, but homeowners with equity should at least explore the options, says Gavin.

The SVRs of most lenders range between 3.99 per cent and 4.99 per cent. As switching is unlikely to incur penalties, borrowers on these rates should actively look for alternatives, says Gavin.

The rates quoted on this page are correct as of August 21st 2011