Homeowners could save thousands of pounds on their mortgage as a price war between lenders drives rates to record lows. HSBC and TSB have both just unveiled two-year fixed rate deals with a rock-bottom interest rate of 0.94 per cent. And a number of lenders have launched eye-catching deals under one per cent in recent weeks to tempt borrowers.
The property market has been flying this year, thanks to a post-pandemic return of confidence and the stamp duty holiday. Although house prices dropped a little in May, according to the latest data from Halifax, they still rose year on year by more than eight per cent.
While the stamp duty holiday started to be phased out at the beginning of this month, homebuyers will still pay reduced stamp duty rates until October when they will finally revert to normal. Lenders are clambering over each other to offer the most eye-catching deals to attract this expected continued flurry of homebuyers and movers.
Bag a bargain: A number of lenders have launched eye-catching deals under one per cent in recent weeks to tempt borrowers
Laura Howard, property and mortgage expert at comparison website Forbes Advisor UK, says that locking in to one of these new low deals could save borrowers hundreds of pounds every month.
She calculates that paying interest of 0.94 per cent, instead of a standard variable loan rate of 4.4 per cent, would result in a saving of more than £350 a month. This is on a £200,000 repayment mortgage over 25 years. ‘This is money that could go straight back into your pocket with nothing less to show for it,’ adds Howard.
But mortgage experts are warning that these deals are not for everyone. For example, the TSB loan is only available for those who want to remortgage and have 40 per cent equity in their home. The HSBC deal is available to homebuyers provided they have a minimum 40 per cent deposit – a big ask for a first-time buyer in particular.
Even if you are eligible for these rock-bottom rates, they still may not prove the best deal, says Eleanor Williams, finance expert at financial data scrutineer Moneyfacts. Both these deals come with a £999 fee, and it is not unheard of these days for lenders to apply fees as high as £1,500. Some borrowers may find they are better off opting for a higher interest rate with a lower fee.
‘Prospective borrowers should not be swayed by a temptingly low rate alone,’ says Williams. ‘It is important to compare the options available and consider the overall cost of a new mortgage deal. Borrowers must balance the initial rate against any costs such as fees – as well as against any incentives that might be available.’ These might include free valuation fees or cashback.
While these headline rates may not be available for everyone, most borrowers should find that they can get a better rate than their existing one when they come to remortgage – especially if they have not shopped around for a while.
David Hollingworth, of mortgage broker London & Country, says: ‘All rates are low at the moment.
‘The competitive pressure is feeding through into all areas of the market, including for borrowers with small deposits and those who want to fix for five years or more. For years we’ve been thinking mortgage rates cannot go any lower and then they do.’
He adds that even borrowers with just a five per cent deposit are benefiting from historically low rates.
A few months ago there were no deals for these borrowers. But today, Coventry Building Society is offering a two-year fixed rate of 3.25 per cent with a £999 fee for those with a five per cent deposit. Leeds is offering a two-year fixed rate of 2.47 per cent with a £999 fee for borrowers with a ten per cent deposit.
