Mortgage rates have fallen to record lows, with Platform now offering a two-year fix with a rate of just 0.79%. Borrowers with big deposits currently have their pick of dozens of sub-1% mortgages, and rates are continuing to drop each week. Here, we take a look at the best rates on the market and offers advice on what you’ll need to think about before settling on a mortgage deal.
What’s happening in the mortgage rate war?
The mortgage rate war began back in May, when TSB fired the starting pistol by launching the first sub-1% fixed-rate mortgage seen since 2017. Since then, lenders have been battling to offer the best rate and there are now more than 100 sub-1% mortgages on the market. A couple of weeks ago, Nationwide entered the race by launching its cheapest-ever two-year fixed-rate deal for homebuyers and remortgagers, with an initial rate of just 0.87%.
That deal has now been eclipsed by Platform, which is now offering a rate of just 0.79%. Platform is part of the Co-Operative Bank, and its mortgages are only available through brokers.
The lender’s 0.79 per cent rate is however limited to borrowers seeking a loan of no more than 60 per cent of the property value, and it comes with a relatively high fee of £1,499. Platform also offers a 0.84 per cent deal at a lower £999 fee.
Marc Dueck, MD at ME Financial Services said: “We’ve been seeing rates going lower for around three years now and it’s never been a better time to secure a good deal. Lenders still appear very eager to lend even considering recent events. The banks are sitting on billions and looking to lend.”
Fees are an important factor for borrowers to consider, over and above the initial rate of the fix, he added. “A lower rate and higher fee tends to be better for large loans and up to £2m can be borrowed here,” he said.
How can I get a sub-1% mortgage?
The cheapest mortgages are available at up to 60% loan-to-value, meaning they’re available to home buyers with big deposits and people remortgaging with significant equity in their home. If you’re remortgaging, you might be able to get an even lower rate than someone buying a property.
Rates on five-year fixes start at just 0.91% for people remortgaging, compared with 0.94% for buyers. If you’ve got a smaller deposit, don’t fret, as the rate war has had a knock-on effect across the mortgage market. It’s now possible to get a mortgage at up to 75% loan-to-value with a rate below 1%, as shown in the table below.
Source: Moneyfacts, 20 September 2021. *Available for remortgaging only. **Available to buyers only.
Rachel Springall, finance expert at Moneyfacts.co.uk, added: “The sub-1% mortgages to surface have grabbed the spotlight as lenders drop their rates to bring in new business after the market endured an unsettled period due to the pandemic. Genuinely a deal with a low rate and high fee may only be suitable for someone with a substantial mortgage and who can meet the eligibility criteria.
sitting on billions in cash and are looking to lend
If borrowers were to approach a broker and assess the deal based on true cost, they may well find they are better off elsewhere on a deal with a slightly higher rate but with a more reasonable fee and incentive package. It really does depend on their circumstances and what they are looking to borrow, so seeking advice is wise.
Does a lower rate mean a cheaper deal?
The cheapest rates are bound to be tempting, but you’ll need to take the full cost of the mortgage into account before rushing in. That’s because lenders are now charging upfront fees as high as £1,499 on their table-topping deals. Higher fees allow lenders to offer lower rates and recoup their losses elsewhere. Above, we’ve listed the best rates available with no upfront fees.
As you can see, you might need to pay a premium of around 0.25% for a fee-free deal, but in some cases a ‘more expensive’ mortgage might actually be cheaper over the fixed term. If you’re unsure about which type of deal to go for, a mortgage adviser will be able to analyse deals based on their true cost, taking into account rates, fees and incentives.
How much lower could mortgage rates go?
Rock-bottom deals aren’t especially profitable for lenders, so they might not stick around for the long haul. At the moment, there are no signs of rates levelling off, but much will depend on what happens in the market and the wider economy in the coming months. If you’re coming to the end of your fixed term and need to remortgage, you’ll likely be better off locking in one of these cheap deals now rather than risking lapsing on to your lender’s standard variable rate while waiting to see if even cheaper deals emerge.
What would make mortgage rates rise?
Inflation and the Bank of England base rate will play a key role in what happens to mortgage rates in the coming months. Inflation is currently at 3.2%, and some predictions have suggested that it could rise as high as 4%. If this looks likely, the Bank of England might be tempted to increase its base rate from the current historic low of 0.1%. The base rate dictates how much interest commercial banks pay to the Bank of England for borrowing, so a higher rate – or even the suggestion that a rise is coming – would likely see lenders bump up their prices.
The Bank’s Monetary Policy Committee votes on the base rate eight times a year. Last month, it decided unanimously to maintain the current 0.1% rate, but lenders will certainly be keeping an eye on the next announcement on 23 September.
How long should you fix your mortgage rate for?
One of the biggest questions when it comes to mortgages is how long to lock in your rate for. Borrowers most commonly fix for either two or five years. Five-year deals were once significantly more expensive, but the gap has closed in recent years. With this in mind, many borrowers have chosen to fix for longer to protect themselves from rate increases. This is a good idea in theory, but it’s not the right move for everyone.
Five-year fixes usually come with high early repayment charges, meaning that you could be charged thousands of pounds if you decide to pay the mortgage back early (for example, if you move home and don’t transfer it to the new property). With this in mind, it’s important to think of your own medium and long-term plans before settling on a mortgage term.
As always, we would recommend using the services of an approved and experienced mortgage broker. If you would like any advice on the property market, feel free to get in touch with our teams here. For an INSTANT FREE Valuation of your property, just click here
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