Mortgage competition is intensifying and rates are falling to less than 1%. For some | Money
IIt seems like this is a golden time for borrowers – or at least for some of them. Homebuyers are being offered mortgages at interest rates below 1% for the first time in nearly four years. Today, experts say they could fall further, as competition between banks and building societies intensifies.
The best buy rate for remortgageurs and homebuyers is 0.99% on a two-year offer. According to financial data firm Moneyfacts, there have been no cheaper five-year fixed-rate mortgages for at least 14 years.
But they are not for everyone. The best deals are firmly targeted at those with large deposits, especially those who resort to mortgages, and some borrowers may find that the lenders’ strict criteria exclude them from the lowest rates. For someone with a 10% down payment, the best buy rate is considerably higher at 3.09%.
What’s on offer
Last week, construction company Hinckley & Rugby changed the criteria for its mortgage to 0.99% – previously it only offered it to borrowers who wanted to switch lenders, but now buyers can apply as well.
This is a two-year deal tied to its standard variable rate, which means it can go up or down at the lender’s discretion. If the Bank of England’s base rate drops, the company might choose to follow, making the loan even cheaper, but it is not obligated to do so.
It is offered only through brokers and available for up to 65% of the property’s value with a fee of £ 699, partially offset by a £ 250 discount for legal fees.
Borrowers who wish to switch to a new lender are offered the widest choice of rates among the best in the market. In addition to the Hinckley deal, TSB launched a two-year, 0.99% fixed rate for remortgagors, available up to 60% loan-to-value (LTV). This has a charge of £ 1,495. For anyone with a small mortgage, a higher rate with no fees or lower fees will be a better bet, but the deal is open to those who wish to borrow up to £ 1million.
When the pandemic took hold last spring, the Bank of England cut the base rate to a record 0.1%, but lenders were not quick to follow suit.
Mortgage rates were historically low, but problems with making the switch to working from home and difficulty completing valuations meant lenders were unwilling to be at the top of the best buy charts.
Now, however, things have changed. Mortgages at 0.99% are the cheapest since September 2017. David Hollingworth of mortgage broker L&C says the launches show “how low mortgage rates are now and how competitive the mortgage market is.”
He says, “When lenders start charging higher fees so that they can lower rates, that’s a sign of the competitiveness of things, because that’s how they can stand out.”
Eleanor Williams of Moneyfacts says that after an unprecedented year it is “fantastic to see rate competition starting to return to the mortgage market.
“Competition can cause other vendors to become more confident and attract borrowers by launching their own offers, so it will be interesting to see how the market evolves in the coming weeks.”
Matt Coulson, director of brokerage Heron Financial, also expects a wave of new offers from lenders. “There is a lot of data to suggest that the real estate market is in good shape and likely will remain so for a while, filling buyers and lenders with confidence, ”he says. “I suspect this will be just the start for many other lenders to do the same, as competition drives prices down.”
For those who want to lock in their rate longer, the cheapest five-year fixed rate mortgages have never looked better. Moneyfacts says the average price of a five-year deal is 2.79%. This is more than the 2.35% it fell to last July. However, the lowest rates on offer are the best to launch since its electronic archives launched in 2007.
Santander’s 1.19% five-year patch is only available to remortgageurs, but offers up to 70% LTV borrowing. The fee is £ 1,249.
The TSB and the Nationwide Building Society are also offering remortgageurs a five-year foreclosure at 1.19%. They both have a maximum loan of 60% LTV and fees of £ 1,495 and £ 1,499 respectively.
“The five-year patches provide excellent value for money, offering borrowers competitive prices over shorter transactions without the potential costs of remortgaging every two years,” says Mark Harris, managing director of mortgage broker SPF Private. Clients.
For home buyers, the lowest five-year fixed rate is set at 1.28% and is available from NatWest. Again, it’s only available up to 60% LTV. At 90% LTV, NatWest’s best rate is 3.39% over five years, which is only beaten by a 3.37% deal from the Leeds construction company.
Coulson says it’s “the perfect time to remortgage.” He suggests that the rise in consumer inflation after the freeze may start to push up the base rate and, with it, mortgage rates. “Now might be a good time to get in before the market drops to its bottom and your situation potentially deteriorates,” he says.
And more requests
As rates have fallen, the bar to qualify for a mortgage has risen. “Some borrowers may find it more difficult to remortgage than others, especially the self-employed or those whose circumstances have changed since taking out the mortgage,” says Harris.
Hinckley & Rugby’s 0.99% offer is not available to independents, although they will consider them for other transactions.
Lenders who are still reviewing self-employed applications are reviewing them more carefully than before the pandemic. They typically ask for recent bank statements, as well as accounts from previous years, and when it is proven that a borrower’s business received any government assistance during the Covid crisis, some refuse to lend.
Hollingworth says these additional checks can be too onerous for lenders if a transaction results in an influx of requests.
Lenders have also made changes to the types of properties they will lend on, some excluding new homes or apartments. However, this is usually for high LTV mortgages, which may not be a problem if you are applying for the best buy rates.
While low rates are eye-catching, it’s critical that borrowers consider the full cost, says Williams of Moneyfacts.
“It’s important that they take into account not only the initial rate, but also other factors such as fees and any available incentives,” she says.
Look for the numbers with a total cost and compare them, rather than the overall rate, and think about your priority: lower your upfront costs or lower monthly repayments.