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The UK’s lending giants are locking horns to attract customers buying new property – or looking to remortgage the home they already live in. The result is some of the cheapest fixed rate mortgages ever recorded.
We take a closer look at the recent spate of sub-1% mortgage deals and what they mean for homebuyers and remortgagers.
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Deals for property purchasers
Halifax offers the lowest mortgage rate over two years, fixed at 0.83%. The deal comes with a £1,499 fee, although borrowers can opt to pay a lower fee of £999 and get a rate of 0.87%. Note however, these deals are only available through a selected panel of mortgage brokers.
As set out in our live mortgage tables (below), HSBC, Halifax, NatWest and Barclays are all offering fixed rates priced under 1% for two years, available via mortgage brokers or from the lender direct. Fees vary, however, so to see the true cost of the deal over the term, filter by ‘initial period cost’ in the dropdown.
Note also that the lowest rates are reserved for buyers with deposits of between 30% and 40% as a total of the property value. However, even with a 10% deposit, it’s possible to bag a fixed rate deal for under 2.1% over two years.
Deals for remortgagers
Rates for remortgagers start from 0.84% fixed for two years (from HSBC and TSB), while over five years HSBC is offering a fixed rate of 0.94%. Again, arrangement fees vary, so sort by ‘initial period cost’ to see the true cost of the loan over the term.
Why is the cost of fixed rate mortgages so low?
Lenders have been willing and able to offer record-low rates for a combination of reasons, starting with an unusually buoyant property market. Annual property inflation in September stood at 7.4%, according to the latest figures from Halifax. This puts the cost of an average UK home at £267,587, which is the highest on record.
The market has been fuelled by the so-called ‘race for space’ which has increased demand for larger properties post-pandemic, as well as the stamp duty holiday (ended 30 September 2021).
Meanwhile, interest rates have remained at a rock-bottom 0.1%.
Who can qualify for the cheap fixes?
Not everyone will be given the green light on these super-cheap deals, however. Some are only available to remortgagers. And the very cheapest come with high deposit requirements, shutting out many first-time buyers anyway.
Mortgage rates also change frequently – but you can use our mortgage tables (above) to see what’s available in realtime. Make sure you select ‘purchase’ or ‘remortgage’ and then enter the property value and how much you need to borrow against it.
You will also need to enter the kind of mortgage deal you want (say fixed, tracker or variable), and over what term. Finally, choose how you want to order the results (say by initial rate or overall cost including the fee).
Bear in mind that, for any mortgage, you will need a very good track record of managing credit which lenders will check against your credit report. If you are worried about this, get a copy of your credit report from a credit reference agency ahead of applying and ensure it’s the best it can be.
It can also be good idea to use an independent mortgage broker who will likely be better positioned to navigate the market for your personal circumstances.
How much could I save in mortgage payments?
Remortgaging away from a loan charging a typical standard variable rate (SVR) to a cheaper fixed rate can save a fortune in monthly repayments.
Take a £200,000 repayment mortgage over 25 years. Paying a lender’s typical SVR of around 3.5% would cost just over £1,000 in monthly repayments. Cut that rate to 1% and the repayments drop to £753, a saving of almost £250 a month.
And according to research from L&C Mortgages (October), the potential cost of failing to shop around for the next best mortgage deal is higher than ever. It found that borrowers could now be paying £2,500 a year more than they need to in mortgage costs, a figure that’s risen from £2,159 in 2020 as rates have continued to fall.
What should I watch out for?
The very cheapest of fixes typically come with arrangement fees which should be factored into any monthly savings. Halifax’s cheapest two-year fix comes with a £1,499 fee, which works out at £750 for each year of the deal.
Especially if your mortgage is on the smaller side, it can prove more cost-efficient to opt for a slightly higher rate in return for ‘no fee’. Bear in mind that if you are opting for a two-year fix over a five-year fix for example, while the rate is cheaper, you’ll be forking out arrangement fees more frequently.
If you are tied into your current mortgage deal you will likely be met with early repayment charges which can make switching, even to a much cheaper rate, a false economy.
Similarly, any new fixed rate mortgage will come with tie-ins. So, signing up requires a certainty that you won’t be redeeming the mortgage, (selling your home for example) within the fixed rate period.
Mortgages are generally portable, however, which means you can transfer the loan to a different property, providing the lender deems it to be adequate security. This would side-step any early redemption fees.
I’m still tied into my current mortgage. What can I do?
Many lenders will reserve a mortgage offer for you for between three and six months (see our research into the Best Lenders For Remortgaging). So, if your current mortgage deal is coming to an end within this timeframe, it could be worth making enquiries and potentially locking in the rate.
