THERE’S hope for millions of homeowners after a new mortgage rate has gone on sale for less than 5% which could inspire a “price war”.
The Mortgage Works, which is a buy-to-let lender, has launched a five-year fixed-rate deal standing at 4.99%.
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It’s available to people borrowing up to 55% the value of the property and is a buy-to-let deal only.
The drop is good news for borrowers as this new rate could put pressure on other lenders to lower their offerings in a bid to get customers.
Rates have been at their highest for 15 years, however lenders are steadily reducing mortgage rates.
The average five-year mortgage rate sits at 5.73%, according to Rightmove.
The average two-year fixed-rate mortgage rate if you have a 15% deposit has dropped to 6.29%, down from 6.32%
Brokers have argued a price war is “well and truly under way” according to The Guardian.
It’s one of the first times in months that lenders have been reducing rates after they shot up earlier this year.
Dan Knott, is a mortgage and insurance adviser at Active Financial, and posts lots of tips on his Instagram page “Dandoesmortgages_”.
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He said: “It’s fantastic to see mortgage lenders reducing rates and a product at 4.99% is certainly a step in a positive direction.
“Commonly, when one lender makes a significant reduction, there will be others who follow in a naturally competitive market.
“However, it’s especially important when accessing products with low interest rates to ensure you fully understand any fees attached by the lender as these can be substantial.”
Dan said people should take time to understand the “true cost of any product, including elements such as the interest rate, fees and cashback incentives”.
He added: “The Mortgage Works are a Buy to Let mortgage lender, a division of Nationwide Building Society.
“Therefore, this won’t yet have any direct impact on the options of residential first time buyers.”
Interest rates have been at their highest level for 15 years.
Many borrowers are facing increasing rates and risk being priced out of their mortgage.
The Bank of England (BoE) lifted the base rate yet again to 5.25% in August, though it set to change next week (September 21).
The figure is used by high street banks and lenders to set the rates it offers customers on mortgages, as well as on other loans and savings.
But even though the base rate might be rising, lenders have been slowly reducing their rates, which is good news for borrowers.
If you have a tracker mortgage that follows the base rate, your interest payments generally rise.
However, even those on a standard variable rate (SVR) are paying £3,000 more than they need to for their mortgage.
Analysis by comparison site Compare the Market found that UK homeowners on an SVR could save £3,084 a year by switching to a fixed-rate deal.
Instead of being automatically moved or staying on a lender’s SVR once a fixed-term deal ends, borrowers may be able to save by remortgaging, the site said.
How to get the best deal on your mortgage
If you’re looking for a traditional type of mortgage, getting the best rates depends entirely on what’s available at any given time.
But there are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio has changed this could also give you access to better rates than before.
A change to your credit score or a better salary could also help you access better rates.
If you have a fixed rate, you could see higher rates when you come to the end of the current term after 14 Bank rate rises since December 2021.
And if you’re nearing the end of a fixed deal in the next six months it’s worth contacting your broker now to lock in a rate.
If they come down between now and the end of your deal, you can always apply for another rate before you remortgage.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare for you, with most offering free advice to secure you the best deal for you.
Some brokers charge for advice, so ask them first.
It could cost a couple of hundred pounds but it might save you thousands on your mortgage overall.
You’ll also need to factor in fees for the mortgage, though some have no fees at all, or you can add it to the cost of the mortgage, but beware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember, if you decide to remortgage to a new lender you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks, and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.
It’s possible to avoid new affordability checks by remortgaging to a new deal with your existing lender, providing you don’t want to borrow more or extend your term.
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