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Competition in the UK mortgage market picked up speed on Friday as the Co-operative Bank launched a record two-year fixed rate contract, with an interest rate of 0.79%.
The deal from Platform, a branch of the cooperative that lends through mortgage brokers, follows a series of rate cuts from lenders, with several now offering two-year fixed rate deals of less than 1%.
The platform’s 0.79% rate is limited to borrowers looking for a loan of no more than 60% of the property’s value and comes with a relatively high fee of Â£ 1,499. The lender also offers a 0.84% ââdeal at a lower fee of Â£ 999.
Mark Harris, Managing Director of mortgage broker SPF Private Clients, said: âWe have been saying that the rates cannot go down for about three years and yet they continue to fall. It is funded by clearing banks, which have billions in cash and are looking to lend. “
Fees are an important factor for borrowers to consider, in addition to the initial rate of the fix, he added. âA lower rate and higher fees tend to be better for large loans and up to Â£ 2million can be borrowed here,â he said.
Eleanor Williams, financial expert at Moneyfacts, said banks were lowering prices as the UK remained in a low interest rate environment. The base rate of the Bank of England has been 0.1% since March 2020.
“The fixed rate war continues in earnest in the residential mortgage industry, fueling the decline in average fixed rates as the majority of vendor product updates this week contain at least some initial rate cuts,” a- she declared.
HSBC, Royal Bank of Scotland, Nationwide, NatWest, Barclays, Virgin Money and Leeds Building Society are among the lenders to cut rates on mortgage products this week.
Remortgage activity has intensified as borrowers move toward low rates, with some realizing that high inflation can eventually lead to higher interest rates. Chris Sykes, a consultant with mortgage broker Private Finance, said some clients have broken existing agreements – paying an early redemption fee to do so – to secure a long-term deal at current rates.
âIt might make sense to pay a 1% early redemption fee if you can lock yourself into a five-year fix at a rate that will save you 0.3-0.4% per annum,â he said. declared. âPeople want this security. “
Banks have also reopened their doors to borrowers with complex or atypical finances, such as the self-employed or those whose income comes from variable bonuses or commissions.
Harris said it was understandable that lenders shut down these loans at the height of the pandemic because its economic consequences were unknown. âBut a lot of people haven’t been affected financially. Banks are realizing that the big hitters make as much money as they always have. “
The resurgence of trail rate mortgages – which follow a base rate – is yet another sign of increased competition in the mortgage market. The number of tracking products nearly doubled from 96 in March of this year to 176 this week, according to Moneyfacts.
Aaron Strutt, product manager at brokerage Trinity Financial, gives the example of a 0.85% two-year tracker with Barclays, for a fee of Â£ 999. âTracking rates were all but gone not that long ago, but they’re back and particularly cheap. “