IIt seems like a golden time for borrowers – or at least some of them. For the first time in nearly four years, home buyers are being offered mortgages with rates below 1%. Now experts say they could fall further as competition between banks and building societies intensifies.
The best buy rate for Remortgagors and homebuyers is 0.99% for a two-year contract. Financial data company Moneyfacts says it has not offered cheaper five-year fixed-rate mortgages for at least 14 years.
But they are not for everyone. The best deals are firmly aimed at those with large deposits, especially those looking to refinance, and some borrowers may find that lenders’ strict criteria keep them out of the lowest interest rates. For someone with a 10% deposit, the best buy rate is significantly higher at 3.09%.
What is on offer?
Last week the Hinckley & Rugby building society changed the criteria for its 0.99% mortgage – previously it only offered it to borrowers who wanted to switch lenders, now buyers can apply.
It’s a two-year contract tied to the standard floating rate, which means it can be moved up or down at the discretion of the lender. If the Bank of England base rate goes down, the company could choose to make the loan even cheaper, but is not required to do so.
It is only offered through brokers and is available for up to 65% of property value with a £ 699 fee that is partially offset by £ 250 cashback on legal fees.
Borrowers looking to move to a new lender are offered the widest range of market leading rates. In addition to Hinckley’s deal, TSB has introduced a two-year fixed rate of 0.99% for Remortgagors, which is available up to 60% loan to value (LTV). That has a charge of £ 1,495. For anyone with a small mortgage, a higher interest rate with no or a lower fee is a better choice, but the deal is open to anyone looking to borrow up to £ 1m.
When the pandemic hit last spring, the Bank of England cut interest rates to a record low of 0.1%, but lenders weren’t quick to follow suit.
Mortgage rates have been historically low, but the problems of moving to work from home and the difficulty of conducting assessments made lenders reluctant to be at the top of the best buy tables.
But now things have changed. The 0.99% mortgages are the cheapest since September 2017. David Hollingworth of mortgage broker L&C says the launches show “how low mortgage rates really are right now and how competitive the mortgage market is.”
He says, “When lenders start charging higher fees to lower interest rates, it is a sign of how competitive things are as it makes them stand out from the crowd.”
Moneyfacts’ Eleanor Williams says after an unprecedented year it is “fantastic to see interest rate competition return to the mortgage market.
“Competition can make other providers more confident and attract borrowers by doing their own deals, so it will be interesting to see how the market changes over the coming weeks.”
Matt Coulson, director of Broker Heron Financial, also expects a number of new offers from lenders. “There is a lot of data to suggest that the property market is in a good place and is likely to stay for a while, leaving both buyers and lenders with confidence, ”he says. “I suspect this will only be the start of many other lenders doing the same as competition is driving prices down.”
For those looking to lock their interest rate longer, best buy five year fixed rate mortgages have never looked this good. According to Moneyfacts, the average price for a five-year contract is 2.79%. That’s more than the 2.35% it fell to last July. However, the lowest tariffs offered are the best introduced since electronic records began in 2007.
Santander’s 1.19% Five Year Fix is only available to Remortgagoren but offers borrowing up to 70% LTV. The fee is £ 1,249.
TSB and Nationwide Building Society are offering Remortgagors a five-year lock-up period of 1.19%. Both have a maximum borrowing of 60% LTV and fees of £ 1,495 and £ 1,499, respectively.
“Five-year fixes are great value and offer borrowers competitive rates compared to shorter deals without the potential cost of rescheduling every few years,” said Mark Harris, general manager of mortgage broker SPF Private Clients.
For homebuyers, the lowest five-year fixed rate is 1.28% and is available from NatWest. Again, it is only available up to 60% LTV. With an LTV of 90%, NatWest’s best rate over a five-year period is 3.39%, only topped by a 3.37% deal from the Leeds Building Society.
Coulson says it is “a good time to reschedule”. He suggests that rising consumer inflation after the lockdown could drive prime rates, and thus mortgage rates, higher too. “Now might be a good time to get in before the market hits bottom and you possibly get worse,” he says.
And more demands
While interest rates have fallen, the bar for qualifying for a mortgage has risen. “Some borrowers may find it harder to reschedule than others, especially the self-employed or those whose circumstances have changed since they took out the mortgage,” says Harris.
Hinckley & Rugby’s 0.99% deal is not available to self-employed people, but is being considered for other deals.
Lenders who are still examining applications from self-employed people are examining them more closely than they did before the pandemic. They usually ask for recent bank statements as well as accounts for the past few years, and if there is evidence that a borrower’s business has drawn on any government aid during the Covid crisis, some refuse to lend.
Hollingworth says those extra checks could be too much for lenders when a business leads to an influx of applications.
Lenders have also made changes to the types of properties they will be lending, with some excluding new builds or apartments. However, this is usually true for high LTV mortgages. This may not be a problem if you are applying for the best buy interest rates.
While low interest rates are eye catching, it is important that borrowers look at the total cost, says Williams of Moneyfacts.
“It’s important that they take into account not just the initial rate, but other factors such as fees and possible incentives,” she says.
Look for total cost numbers and compare them, not just the headline rate. Think about your priority – keep your upfront costs down or cut down on monthly repayments.