Yorkshire Building Society has reignited the mortgage price war with the lowest interest rate ever available in the UK at 0.89%.
The 0.89% rate represents a discount of 3.85% from the Society’s standard variable rate which is currently 4.74%.
However, while the record busting rate looks good on paper there are a couple of downsides.
The two-year deal has a product fee of £1,495 and is only available to buyers with a 35% deposit.
As the mortgage is linked to the Society’s standard variable rate, it may also not give homebuyer’s the security against a rise in interest rates that they get from locking into a long-term fixed deal.
While the rate could go down if the standard variable rate falls, many experts think this is unlikely.
So if the standard variable rate goes up, so does the rate you pay each month.
James Farrow, senior mortgage manager at Yorkshire Building Society, said: “We are very pleased to offer borrowers the lowest mortgage rate ever available.
“The cost of funding has fallen in recent weeks and as a financially strong building society with no external shareholders to satisfy we have the ability to pass this on to borrowers.”
Only a few months ago it looked as if the era of record low rates looked to be over, but the move by Yorkshire suggests competition in the mortgage market may be about to heat up again.
Since the financial crisis in 2008 mortgage rates have steadily fallen.
The Bank of England cut interest rates in August from 0.50% to 0.25% – the lowest on record and the first interest rate cut since 2009 when the financial crisis was at its peak. This led to a number of lenders cutting their rates.
Rachel Springall, finance expert at Moneyfacts, said those looking for more flexibility over the shorter term may prefer a discounted deal, while those looking for security could choose a fixed rate.
She said: “In such a low interest rate environment it would be ideal for borrowers to consider overpaying their mortgage. As with any option borrowers would be wise to weigh up the entire package before entering any arrangement.
“The 0.89% discounted rate deal could appeal to borrowers with a sizable mortgage and who have a decent amount of equity or deposit. Borrowers will also need to keep in mind that the deal comes with a product fee and does not carry any incentives such as a free valuation or free legal fees, so they must be prepared to cover the these costs.”
However, homebuyers need to get in quick if they see a cheap deal they like, Springall warned.
“A headline rate may not be around for long, so if borrowers are seriously considering one, then they would be wise to get everything in place to put them in the best position possible to be granted a mortgage,” she said.
This was seen this week when Atom Bank pulled its market beating 1.29% five-year fixed rate mortgage deal after only nine days.
Last month, Yorkshire launched a 0.99% two-year mortgage, its lowest ever fixed rate product.
The rate matches Santander’s 18-month fixed rate deal at 0.99% which was launched in February.
Last year, HSBC also had a 0.99% two-year fix which was withdrawn in December.
David Hollingworth, mortgage expert at L&C Mortgages, said the deal underlines just how competitive the current mortgage market is.
He said: “Of course the rate isn’t the only thing for borrowers to consider and the fee is a substantial £1495 so does need to be factored in.
“The deal is a variable rate and a touch lower than the current lowest two-year fixed rate – also from YBS at 0.99% – but of course could climb if interest rates do rise. We continue to see at least 90% of borrowers electing to fix in the current climate where the base rate is at an all-time low and fixed deals are very competitive as well as offering budgeting security.
“The addition of this record low discount again highlights that borrowers may never have had it this good and should be taking the opportunity to review their rate.”
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