Get a mortgage at less than 2%

A new tracker mortgage has been launched that offers both an incredible rate and a cheap product fee!

Variable mortgages have looked very tempting for quite some time now. For starters, it seems a pretty stable time to go for a tracker, with base rate unlikely to move for some time, and even when it does start increasing, the Bank of England’s Monetary Policy Committee (which sets base rate) are so conservative, it’s only likely to increase in small increments.

And that’s even before you consider just how attractive the rates are – there are a stack of deals that offer you the chance to pay less than 2% interest on your mortgage, a frankly incredible rate.

However, these deals were not quite as sexy as they appeared, as they came with eye-watering product fees. Or at least, they did...

Having your cake and eating it!

Now, borrowers have the option of an incredible rate AND a decent fee to boot, thanks to a new deal from First Direct.

The lender has launched a new two-year tracker deal at 1.99% (tracking base rate plus 1.49%), available to borrowers with a 35% deposit, but with a fee of just £999. Compare that to the rival deal from Cheltenham & Gloucester, which offers the same rate and is available to borrowers with deposits of just 25%. However, the C&G mortgage charges a fee of a whopping 2.5% of the mortgage advance.

So on a £150,000 mortgage, that’s a fee of £3,750 if you want to borrow from C&G, as opposed to the flat fee of £999 from First Direct. That difference becomes even more pronounced with larger mortgages.

What’s more, First Direct will even cut the fee to £99 if you sign up to a rate of 2.19% instead.

Not alone

And First Direct are not alone in offering a great rate without hitting you with an extortionate fee for the privilege. For borrowers with a sizeable deposit (40% minimum), Royal Bank of Scotland offer a two-year tracker at 1.99% and a fee of just £499.

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It’s not just borrowers with huge equity stakes that can take advantage of such great deals either. If you have a deposit of 20%, Darlington Building Society are a good bet. You may not have heard of them, but the mutual is currently offering a cracking two-year tracker at 2.65% (that’s base rate plus 2.15%) and with a fee of just £574. However, as with all smaller lenders, these deals may not last for too long so if you fancy it, you’ll need to act quickly.

And if you only have a 15% deposit, Yorkshire Building Society may well be your best bet, with a rate of 3.49% (base rate + 2.99%) and a fee of just £495.

The total package

In the table below I’ve put together a round-up of some of my favourite variable mortgages in the market at the moment, for a variety of different deposits. It’s worth noting that in some cases these are not the absolute lowest rates available.

For example, in some areas lenders like The Mortgage Works will offer deals that boast a lower interest rate. However, I haven’t included them as the fees charged, as with the C&G deal, are astronomical. For most borrowers it makes more sense to pay a little more in interest over the long-run, rather than break the bank to get the mortgage in the first place.

Essentially, the deals in my table (bar the C&G two-year tracker, which I’ve really only included for reference purposes) are the best two-year trackers that offer the total package of competitive rate and reasonable product fee.

The variable gamble

Of course it would be daft of me to write a piece about variable mortgages without including a health warning. All the signs are there to suggest that base rate will stay at its record low of 0.5% for a while yet, and once it does start to increase it will do slowly.

However, it wouldn’t exactly be unusual for the experts to get it wrong about the mortgage market...

That’s why, if you do go for a variable mortgage, it’s extremely important for you to do your sums to ensure than you can afford your mortgage not only at its current rate, but also if base rate moves sharply upwards.

The fee you pay on your mortgage could make a difference here too – that £2,751 you saved in the example above by going for First Direct rather than Cheltenham & Gloucester can be put into savings, and help reduce the impact of future base rate rises. However, it may be that you’d prefer to pay the cash up front to secure a slightly lower mortgage rate, and then put that money you’re saving on your mortgage repayments towards a contingency fund for when rates rise.

It all comes down to your own attitude to risk. If you're not sure what to do, it's a good idea to discuss the different options with a professional mortgage broker, who can help you figure out which type of deal would be best for you. The lovemoney.com mortgage brokers are fee-free and you can chat to them online - just hop over to the mortgage centre for more help.

10 tremendous two-year trackers

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