UK loan giants are locking horns to lure customers through their doors after the pandemic. The result? The cheapest fixed rate mortgages ever.
We take a closer look at the recent wave of mortgage offers less than 1% and what they mean to buyers and remortgagers.
Correction for two or three years
- Halifax offers the lowest two-year mortgage rate, set at 0.83%. The deal comes with a fee of Â£ 1,499, although borrowers can opt for a lower fee of Â£ 999 and pay 0.87%. However, both mortgages are for purchases only and require a minimum deposit of 40%. They are also only available through a select panel of mortgage brokers.
- Nationwide has a two-year plan priced at 0.91%, for a minimum deposit of 40% and a fee of Â£ 1,499, plus a three-year plan priced at 0.94% with a fee of Â£ 999. These offers are available to remortgagers and buyers (including first time buyers) either through brokers or directly from the lender.
- From Thursday August 20, the Yorkshire Building Society is offering a two-year fixed rate for the price of 0.95% for borrowers with deposits smaller than 35%. A slightly higher rate of 0.97% is available over two years with a 25% deposit. Both offers are available to homebuyers and remortgagers and come with a fee of Â£ 1,495.
Five for five years
- Nationwide offers a rate of 0.99% fixed over five years for a deposit of 40%. It comes with a fee of Â£ 1,499 and is available for movers and remortgagers.
- Halifax has a 0.98% five year fix with a charge of Â£ 1,499. The deal is available to remortgagers only through selected mortgage brokers.
Other lenders offering fixed rate mortgages below 1% include TSB, Santander, NatWest and some smaller construction companies.
Why are the cost of fixed rate mortgages so low?
Lenders are keen to attract new customers through their doors in an exceptionally buoyant âpost-pandemicâ real estate market.
Average UK house prices have risen, in part because of the looming stamp duty holiday (in England and Northern Ireland) on September 30.
Coupled with the Bank of England’s base interest rate at a constant low of 0.1%, mortgage lenders are both able and willing to deliver deals that make the headlines.
Who Can Benefit From Inexpensive Patches?
However, not everyone will be given the green light on these super cheap deals. Some, like those from Halifax and the TSB, are only available for remortgagers. And the cheaper ones come with high deposit requirements, excluding many first-time buyers anyway.
You will also need an excellent past credit management record, which lenders will check against your credit report. Even a minor mistake could exclude you from these great offers.
What would my mortgage payments be?
Re-mortgage away from a loan charging a typical Standard Variable Rate (SVR) to a very cheap fixed rate can save a fortune in monthly repayments.
Take, for example, a 25-year Â£ 200,000 repayment mortgage. Paying a lender’s typical SVR (4.4% according to Moneyfacts) would cost Â£ 1,100 in monthly repayments. Lower that rate to 1% and refunds drop to Â£ 753 – a savings of almost Â£ 350 per month.
What should I watch out for?
The cheapest patches come with an arrangement fee that should be factored into the monthly savings. Halifax’s cheapest two-year patch comes with a fee of Â£ 1,499, which equates to Â£ 750 for each year of the deal.
Especially if your mortgage is smaller, it may be more profitable to opt for a slightly higher rate in exchange for “no charge”. Keep in mind that if you go for a two-year fix instead of a five-year fix, for example, when the rate is cheaper, you’ll pay an arrangement fee more frequently.
If you’re tied to your current mortgage contract, you’ll have to pay prepayment charges which can make the switch, even at a much cheaper rate, a false economy.
Likewise, any new fixed rate mortgage will have links. Thus, to register, you must be certain that you will not redeem the mortgage (sale of your house for example) within the time limit.
However, mortgages are generally transferable, which means that you can transfer the loan to another property, as long as the lender considers it adequate security. This would avoid the early redemption charge.
I am still tied to my current mortgage. What can I do?
Many lenders will reserve a mortgage offer for you between three and six months (see our research on the best lenders for remortgage). So if your current mortgage contract comes to an end within that time frame, it is definitely worth your while to find out and potentially lock in the rate.