Thanks to the Bank of England dropping its base rate to an all-time low of 0.1%, mortgage rates have also been heading southwards over the last year.
Rewind several months and people were remortgaging onto deals which may have seemed obscenely low at 1.2% or 1.3%. But more recently lenders have been getting even more competitive to the extent we are now seeing mortgages with rates of below 1%.
These deals – which those in the business have coined ‘sub-1%’ are coming in at 0.99% or even 0.95% and look particularly attractive at a time when, due to Covid-19, many households are looking to make savings.
But who can benefit from these deals and what – if anything – is the catch?
Which lenders are offering the deals?
According to the number crunching experts at Moneyfacts there were, as of Thursday 17 June, 14 deals on the market which had ‘sub-1%’ rates.
You may recognise the bigger names offering these products – Nationwide Building Society has a 0.99% deal which is fixed for two years as does TSB. Ditto HSBC, which entered this market last week.
But some of the smaller lenders have also swooped in with low rate deals – Leek United, Cumberland and Hinckley & Rugby building societies all have something to bring to this rather tempting table.
One lender – Platform – is offering a rate of 0.95%. Meanwhile Santander has attempted to nudge into this space with a couple of 1% mortgages.
So what’s the catch?
Before you rush out to remortgage there are, of course, some clauses to these attractive rates. One of which is fees.
Data out today from Moneyfacts suggests fees are going up on average and more lenders are tagging these charges onto their mortgages now than a year ago.
The sub-1% mortgages are no exception. They all come with some kind of booking, arrangement, completion or reservation fee which at the lowest end is £999 up to a high of £1,999.
It’s not unusual for products to have fees so this shouldn’t necessarily put you off, but it’s worth considering when you – or you broker – do your calculations.
And, talking of brokers, here’s the other factor to consider – some of these deals are only available through an intermediary (also known as a broker or an adviser) only. One of TSB’s offerings, both of Santander’s and the 0.95% Platform deal are only on offer via ‘selected intermediaries’.
However, going through a broker is an advisable way to find a mortgage deal as they will help you with all the above calculations. Indeed, you may find a deal with a slightly higher rate works better for you – especially if you need flexibility in repayments or have a complex income.
One other vital aspect to consider is all these deals are for those with a high amount of equity in in their property.
If you are a newbie with a 5% deposit or even a remortgager with 20% equity you won’t qualify. You’ll need at least 25% deposit or equity to be approved for many of these deals and some even require as much as 40%.
Expert verdict
Eleanor Williams, finance expert at Moneyfacts, thinks these new ‘eyecatching’ deals are great news for borrowers.
“It is fantastic to see some rate competition return to the mortgage market,” she said. “This indicates an appetite to lend from the providers and reflects an ability to price low while we are in a low interest rate environment.”
But she reiterated the points about fees. “Prospective borrowers may want to tread carefully and not be swayed by a temptingly low initial rate alone,” Williams explained.
“It’s important to always compare all the different deals available across the market and ensure that they consider the overall, true cost – balancing the rate against any outlay they will incur such as fees, but also any incentives that might be available to them.
“It is often the case that headline-grabbing low rates may also come with the highest fees, and these products might be more suitable for someone with a larger mortgage, and, of course, applicants who are able to meet all of the provider’s eligibility criteria.
“Having independent support and advice can be invaluable in navigating the various options and ensuring a borrower is able to make the best choice for their individual circumstances.”
