It appears to be a golden time for borrowers – or some of them, at least. Homebuyers are being offered mortgages with interest rates below 1% for the first time in almost four years. Now experts say they could fall even further, as competition among banks and building societies heats up.
The best-buy rate for both remortgagors and homebuyers is 0.99% on a two-year deal. Financial data firm Moneyfacts says there have not been cheaper five-year fixed-rate mortgages on offer for at least 14 years.
But they are not for everyone. The best deals are firmly targeted at those with large deposits, particularly those remortgaging, and some borrowers may find that lenders’ strict criteria locks them out of the lowest rates. For someone with a 10% deposit, the best-buy rate is considerably higher at 3.09%.
What’s on offer
Last week Hinckley & Rugby building society changed the criteria on its 0.99% mortgage – previously it was only offering it to borrowers who wanted to switch lender, but now buyers can apply, too.
Its a two-year deal linked to its standard variable rate, which means it can move up or down at the lender’s discretion. If the Bank of England base rate does go down, the society could choose to follow, making the loan even cheaper, but it is not obliged to do so.
It is offered only through brokers, and available up to 65% of the property’s value with a £699 fee, offset partly by £250 cashback for legal fees.
Borrowers who want to switch to a new lender are being offered the biggest choice of market-leading rates. As well as Hinckley’s deal, TSB has launched a 0.99% two-year fixed-rate for remortgagors, available up to 60% loan to value (LTV). That has a fee of £1,495. For anyone with a small mortgage, a higher rate with no, or a lower, fee will be a better bet, but the deal is open to those who want to borrow up to £1m.
As the pandemic took hold last spring the Bank of England cut the base rate to a record low of 0.1%, but lenders were not quick to follow.
Mortgage rates were historically low, but problems with switching to working from home, and the difficulties of carrying out valuations, meant lenders were not keen to be top of the best-buy tables.
Now, however, 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 actually are at the moment, and how competitive the mortgage market is”.
He says: “When lenders start putting in bigger fees so they can depress the rates, it’s a sign of how competitive things are, as that’s the way they can stand out.”
Eleanor Williams from Moneyfacts says after an unprecedented year it’s “fantastic to see rate competition begin to return to the mortgage market.
“Competition can lead other providers to become more confident and attract borrowers by launching their own deals, so it will be interesting to see how the market shifts in the coming weeks.”
Matt Coulson, director at broker Heron Financial, is also expecting a flurry of new offers from lenders. “There’s plenty of data suggesting that the property market is in a good place and will likely remain so for a while, filling both buyers and lenders with confidence,” he says. “I suspect this will be just the start of many other lenders doing the same, as competition brings prices down.”
For those who want to lock their rate for longer, best-buy five-year fixed-rate mortgages have never looked so good. Moneyfacts says the average price of a five-year deal stands at 2.79%. That is higher than the 2.35% it fell to last July. However, the lowest rates on offer are the best to be launched since its electronic records began in 2007.
Santander’s 1.19% five-year fix is only available to remortgagors, but offers borrowing of up to 70% LTV. The fee is £1,249.
TSB and Nationwide building society are also offering remortgagors a five-year lock-in at 1.19%. They both have maximum borrowing of 60% LTV, and fees of £1,495 and £1,499 respectively.
“Five-year fixes offer great value, giving borrowers competitive pricing compared with shorter deals without the potential remortgaging costs every couple of years,” says Mark Harris, chief executive of mortgage broker SPF Private Clients.
For homebuyers, the lowest five-year fixed rate is set at 1.28% and is available from NatWest. Again, it’s available only up to 60% LTV. At 90% LTV, NatWest’s best rate is 3.39% over five years, which is beaten only by a 3.37% deal from Leeds building society.
Coulson says that it’s “a great time to remortgage”. He suggests that rising consumer inflation post-lockdown could start to drive up the base rate and, with it, mortgage rates. “Now might be a good time to get in there before the market bottoms out and you potentially end up worse off,” he says.
And more demands
While rates have dropped, the bar to qualifying for a mortgage has got higher. “Some borrowers may find it more difficult to remortgage than others, particularly 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 the self-employed, although it will consider them for other deals.
Lenders who are still considering applications from those who are self-employed are scrutinising them more carefully than before the pandemic. They are typically asking for recent bank statements, as well as past years’ accounts, and where there is evidence that a borrower’s business has taken any kind of government help during the Covid crisis, some are refusing to lend.
Hollingworth says that these extra checks may be too much for lenders to take on if a deal leads to an influx of applications.
Lenders have also made changes to the types of properties they will lend on, with some ruling out newbuild houses or flats. However, this is typically on mortgages with high LTVs, so may not be a problem if you are applying for the best-buy rates.
While low rates are eye-catching, it is vital borrowers look at the whole cost, says Moneyfacts’ Williams.
“It is important they take into account not only the initial rate, but also other factors such as fees and any incentives that may be available,” she says.
Look out for figures with a total cost and compare them, rather than just the headline rate, and consider what your priority is – keeping your upfront costs down, or reducing monthly repayments.