Homeowners could pay interest of less than 1 per cent if they remortgage, after a new home loan was launched by one of the UK’s leading lenders.
TSB is now offering a two-year fixed rate of 0.99 per cent to those with at least a 40 per cent deposit who are refinancing their home loan. Those buying a property will have to pay a higher rate of 1.09 per cent.
According to mortgage brokers, two-year fixed rates with interest as low as 0.99 per cent have not been seen since 2017.
Rock-bottom: Mortgage rates are at a historical low, with some charging less than 1% interest
Lenders became cautious during the early days of the coronavirus pandemic lockdown, pulling mortgage deals from the market and increasing some rates.
However, the intense activity in the bouyant housing market since summer 2020 has encouraged them to be more competitive, launching attractive deals to draw in customers.
Meanwhile, Britain’s big banks recently reported that the impact of Covid-19 has not been as bad as expected and some have released money set aside to deal with bad debts.
In historical terms, mortgage rates have remained very low for the past few years.
Borrowers taking the TSB deal will need to pay a fee of £1,495. A rate of 1.14 per cent is available with a £995 fee, and there is a fee-free option with a rate of 1.96 per cent.
The equivalent for home purchasers is 1.09 per cent, with a £995 fee – one of the lowest rates now available in that market.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: ‘Just when you thought mortgage rates couldn’t go any lower, TSB launches a sub-1 per cent two-year fixed-rate remortgage deal.
‘This is not just a cracking rate, but borrowers get two years of certainty and protection from potential interest rate rises.
‘With funding costs remaining low, and lenders with plenty of cash to lend, we may well see other lenders follow suit and reduce their mortgage rates in coming weeks.’
Competitive: Lender TSB has launched the market-leading low rate of 0.99% for remortgagors
Watch out for fees, this might not be the cheapest deal
Previously, the lowest interest rate available for remortgage with a 40 per cent deposit was 1.03 per cent with NatWest, also with a £1,495 fee.
However, borrowers should be aware that they could still pay less overall if they took a higher rate with a lower fee.
For example, a homeowner remortgaging a £300,000 property with a 40 per cent deposit would pay £8,878 per year on TSB’s 0.99 per cent two-year fix.
But if they took Santander’s rate of 1.34 per cent with just a £49 fee, they could slash their annual bill by £376.
You can weigh up rates against fees and find the deal that offers the cheapest monthly payments using the This is Money mortgage calculator.
For those looking to fix for longer, the lowest interest rate currently available on a five-year fix for remortgagors is currently 1.19 per cent with a £1,494 fee, also with TSB.
For purchase, the best buy is NatWest’s 1.27 per cent rate with a £749 fee, although lower interest rates are available with higher fees.
TSB’s 0.99 per cent mortgage is not the first sub-1 per cent rate to be launched this year, although it is the first to offer the security of a fixed term.
Hinckley and Rugby Building Society launched a two-year discount variable rate for remortgaging homeowners with deposits of 40 per cent or more back in April, for example.
A discount mortgage is set at a certain amount below the lender’s standard variable rate for the duration of the fixed term – in this case two years.
The lender is free to change their standard variable rate whenever they like, so the amount borrowers pay could increase.
This week, data from finance experts Moneyfacts showed that the number of mortgages available was back to 75 per cent of pre-pandemic levels.
Across all loan-to-value brackets, the average two-year fixed rate dropped very slightly month-on-month to 2.57 per cent at the start of May, while the average five-year fixed rate increased very slightly to 2.79 per cent.
The reason it did not drop further was probably that several lenders have recently launched 5 per cent deposit mortgages, some of which have interest rates of more than 4 per cent.
Deals are sticking around for longer, too. Moneyfacts said that in April the average shelf-life of a mortgage deal increased by three days to 32, meaning borrowers now have more time to secure their chosen product.
