The UK’s cheapest-ever fixed-rate mortgage goes on sale on Friday as a price war continues to drive home loan rates to record lows. The “lowest ever” deal, priced at 1.09% for two years, raises the prospect that home loans allowing people to fix their monthly payments for less than 1% could be just days away.
The new mortgage, offered by the Co-operative Bank, is the latest salvo in a battle for business that has sent tumbling mortgage rates. On April 20, HSBC began offering a five-year fixed-rate home loan with a 1.99% rate – the first time a deal of this type has been available at below 2%.
The new Co-op Bank home loan fixes payments until June 2017. The 1.09% rate is the lowest ever recorded for a fixed-rate mortgage over any period, said financial data provider Moneyfacts. It trumps the 1.18% two-year rate currently offered by Yorkshire building society.
“Borrowers have never had it so good,” claimed Adrian Anderson, director of mortgage broker Anderson Harris, adding that the fierce competition between lenders was likely to push rates even lower.
“Admittedly, borrowers need to get past the tighter restrictions introduced as a result of the mortgage market review, and require a sizeable deposit in order to access the best mortgage deals, but if they can do this, then the rates on offer are spectacularly low. , ”He said.
Some experts said Co-op Bank’s move increased the likelihood that new two-year fixed rates could soon go below 1% for the first time ever. Mark Harris, chief executive of rival mortgage broker SPF Private Clients, said: “With the Co-op launching a two-year fix at 1.09%, unbelievable as it may seem, it could only be a matter of time before we have a sub -1% two-year fix. “
As is usually the case with the most competitively-priced loans, the Co-op Bank deal is reserved for those buyers who have a large deposit – in this case 40% or more – or who have the equivalent equity in their home. Those buyers who can only manage a deposit of perhaps 5% or 10% usually have to pay significantly higher rates. Such deals also typically carry a four-figure arrangement fee. The new Co-op Bank mortgage has a fee of £ 1,499.
The intense competition has been driving interest rates down to ever lower levels. On Wednesday, Nationwide building society unveiled what it said were its lowest ever two- and five-year fixed-rate deals, followed on Thursday by Coventry building society, which unveiled its cheapest ever five-year fixed loan. Thursday also saw Barclays announce that it would be matching HSBC’s five-year rate with its own 1.99% five-year deal.
Mortgages for those happy to fix their monthly payments for a decade have also never been cheaper, with Barclays yesterday also cutting the cost of its 10-year fixed-rate deal to 2.99%, matching deals available earlier this year.
It is not just interest rates for homebuyers and those looking to remortgage that have been coming down – the cost of new buy-to-let mortgages for landlords has also been tumbling, to the consternation of first-time buyers competing with investors for a home .
“It just shows how hard lenders are pushing to catch borrowers’ attention at the moment,” said David Hollingworth at mortgage broker London & Country. “They are having to compete very hard to stand out from the crowd.”
Harris suggested that the general election had contributed to the market getting off to something of a slow start this year, which meant many were behind on targets.
According to the Council of Mortgage Lenders, gross mortgage lending in the first three months of this year totaled an estimated £ 45bn, which was 12% down on the last three months of 2014, and 3% down on the first quarter of 2014.
Anderson, meanwhile, urged those who needed a mortgage now but were holding out in the hope of even lower rates not to be “greedy”, claiming: “Historically, these rates are so low that you wouldn’t regret fixing now.”
While 1.09% is a new record low for a fixed-rate mortgage, it is not the cheapest home loan ever seen in the UK. It is thought that honor goes to a “tracker” mortgage offered some years ago by Cheltenham & Gloucester, which was set at 1.01% below the Bank of England base rate – which meant that when interest rates were cut to their current historic low six years ago, borrowers were paying no interest.