Make the most of historic low mortgage ratesTime to get a mortgage as rates are slashed?

27 February 2015

The mortgage market is offering historic low rates, meaning there are bargains to be had whether you are a first-time buyer or looking to remortgage your home.

In just the last few weeks,Yorkshire Building Society has launched a two-year fixed rate mortgage at 1.18% and Chelsea Building Society lowered the rate on its five-year fixed-rate mortgage to just 2.19%*.

You'll need a reasonably large 35% deposit to qualify for these rates, but competitive deals are also available to people with smaller deposits.

HSBC has a range of discount mortgages for people borrowing up to 90% of a property’s value, with rates starting at 2.38%*. The rate is guaranteed to be 1.56 percentage points below HSBC's standard variable rate (SVR) for two years, so it could rise if the SVR goes up.  

Lenders slash mortgage rates

These three mortgage companies are far from alone in offering historically low rates. Lenders are slashing their rates because they are keen to persuade people to lock into mortgage deals now as the prospect of deflation hovers over the British economy.

So what should you do to take advantage of falling rates and secure yourself an historic mortgage bargain?

How to get the best mortgage deal: step by step

1. Check your existing mortgage

If you already have a mortgage then you need to check if you will be penalised for leaving. 

If you’re still within an initial deal period on a mortgage you may have to pay an early repayment charge to leave. This is likely to be expensive so now may not be the right time for you to switch.

So confirm all the essentials about your current mortgage: the interest rate, monthly repayments, the total amount outstanding and, most importantly, any fees or penalties you would have to pay if you leave. 

You can find this out by asking your lender for a redemption statement, which will make all these details clear. Use the information to work out how much lower your rate and monthly payments would have to be to make re-mortgaging worthwhile. 

2. Decide what type of mortgage you want

Getting the best rate will be high up your list of priorities but don't rush into a deal simply because of an attractive headline rate. There are other things to consider, particularly the type of mortgage. Would a fixed-rate mortgage, a variable-rate mortgage or another form of loan suit you better? 

Fixed-rate deals can offer more security as you can be certain of what your repayments will be for two, five or even ten years, depending on the length of the deal. 

Normally you would expect to pay more for a fixed-rate deal than a variable one, but in the current market competitive rates are available on fixed-rate deals as well.

Do you have savings you could offset against your mortgage? With an offset mortgage you link your savings to your mortgage, which lowers the amount of interest you need to pay and cuts your monthly repayments. 

With this arrangement you would no longer receive credit interest on your savings, but in the current low-interest savings market this could make financial sense.

You should also consider if you want your mortgage to give you the ability to make overpayments or to take payment holidays.

3. Find the right mortgage deal

There are a huge number of mortgage deals available on the market. As a starting point you could compare what's on offer online. The Which? mortgage comparison tables search through thousands of mortgages to help you choose the right deal based on quality of service as well as cost and benefits.

It can also help to speak to an independent, mortgage broker so they can talk you through your options. 

You may find it harder to get a mortgage than you did in the past, because new rules introduced last year mean all lenders now have to conduct thorough affordability checks of potential borrowers. A broker can advise you on which lenders are likely to accept your application.

The Which? Group offers an independent mortgage advice service, Which? Mortgage Advisers, that looks at a wide range of mortgages from every available lender. You can also find an independent mortgage adviser using

Remember to speak your own bank as well. If you have a mortgage with it, you may be offered an incentive not to leave. If you're a first-time buyer you may find it easier to get a mortgage as it already knows you, and it may also have special deals for existing customers.

4. Remember the fees

Most mortgages will come with an arrangement or booking fee you need to pay to take out the deal. These fees will often add around £1,000 or more on to the cost of a mortgage. This means that the mortgage with the lowest interest may not necessarily be the cheapest once you add in the cost of fees.

What will happen to mortgage rates?

It is possible that mortgage rates on offer could go lower, although no one be sure what will happen. So if you don't have a mortgage, there is a chance even better deals could be available in the future.

However, if you already have a mortgage and can move without triggering hefty penalty fees, now could be a good time to look for a better deal. 

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*The APR on the 1.18% two year fixed rate mortgage from Yorkshire Building Society is 4.5%. The APR on the 2.19% five year fixed rate mortgage from Chelsea Building Society is 4.3%. The APR on the two year discounted 2.38% mortgage from HSBC  is 3.9% APR.

Which? Ltd is an Introducer Appointed Representative of Which? Financial Services Ltd, which is authorised and regulated by the Financial Conduct Authority. Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.