Cheapest mortgage rates in 23 years!

Interest rates on new mortgages just keep falling...

Here’s a sentence I bet you didn’t expect to read today:

Mortgage rates haven’t been this low since Yazz and Plastic Population topped the singles charts with The Only Way Is Up.

Yes, according to Moneyfacts, when it comes to new mortgages – the only way is actually down. Figures from the financial data site show that interest rates are now sat at the lowest level since its records began back in 1988. That’s a whopping 23 years, or to put it another way – my life thus far!

Just take a look at these current average rates for various types of mortgages...

Source: Moneyfacts.co.uk

So why are mortgages currently so cheap?

Rates and races

Last month I reported that despite the current unstable financial climate, it may still be a good idea to plump for a variable mortgage that tracks the Bank of England Base Rate. Inflation may still be very high, but with economic growth still faltering and a Bank of England committee that seems committed to keeping interest rates low, we could be in for a good few more months with a 0.5% Base Rate.

And indeed it seems that the international money markets are accepting the Bank of England’s reluctance to up rates. As a result, this is pushing down the costs of borrowing for mortgage lenders and allowing them to drop their interest rates for home buyers.

Something of a ‘race to the bottom’ is also lowering mortgage prices. This is in part fuelled by the Spring buying season as lenders attempt to outflank each other on rates.

It all kicked off back in early May as Barclays, Skipton, Halifax, Northern Rock and HSBC all chopped their rates. Nationwide and Yorkshire Building Society have recently followed suit offering sub-4% five-year fixes for those with 30% and 25% deposits respectively. You can even snap up a mortgage with Woolwich for less than 3% if you can put up a 30% deposit and lock in for just two years.

Take a look at the tables at the bottom of this article for a full run-down of the best deals around at the moment.

But be warned, just because mortgages are cheaper, it doesn’t necessarily mean that they’re easier to get hold of.

Cheap and (not-so) easy

The Moneyfacts figures are based on average rates across mortgage types and hence are not specific to the levels of borrowing as a percentage of a property’s value. Consequently, it’s more than likely that these averages are being dragged down by the low interest rates for high deposit mortgages. Indeed, looking through the latest mortgage offers, a significant spike in rates is evident as the 20% deposit level is passed.

Factor in the current pitiful savings rates and tight financial climate, and this requirement for a large deposit is bad news for first-time buyers. Moreover, recent mortgage approval figures will only add to the worries of new home-hunters.

Bank of England stats show that mortgage approvals are still stuttering, edging up by only 1% in May to 47,345 after falling to a four month low of 45,447 in April. This indicates that the mortgage market is still fairly stagnant. So although mortgage providers may be dropping their rates to pull in applications, they’re still extremely picky as to who they actually lend to.

However if your finances are looking in a healthy state and you can afford to cough up a hefty deposit, there’s no reason why you shouldn’t pick up a bargain.

So what are the best types of mortgages around at the moment?

Right time to buy?

Ultimately the deal you plump for will depend more on your own situation than the markets. If you’re after the consistency of a fixed rate mortgage, then the five year deals are looking particularly attractive at the moment. In addition to the 3.99% rate from the Yorkshire, Chelsea Building Society is also offering a 3.89% rate for those with a 40% deposit. However, there is a hefty £1,995 fee on this mortgage.

If you don’t want to lock into a fixed deal quite yet and fancy your chances with a low variable rate, there is also a raft of cheap tracker deals. HSBC and First Direct are offering two year variable deals currently sat at less than 2% for buyers able to stump up a 40% and 35% deposit respectively.

HSBC also has a range of best-buy lifetime trackers; if you are able to put up a 40% deposit you can trouser a deal running at just 2.09% above Base Rate with no fees. Meanwhile for buyers with 20% and 10% deposits, HSBC’s rates are 2.79% and 4.59% above Base Rate respectively. Both of these mortgages also have no fees.

But remember that when Base Rate rises, your interest rate will also head skywards. And what’s more, if you do decide to switch to a fixed product after Base Rate has increased, you’ll probably find yourself catapulted into a costly mortgage market.

It’s this fear of spiralling variable interest that has led many lenders to concoct tailor-made mortgages allowing buyers to take advantage of current cheap tracker rates while also providing a fixed safety net if rates do rise. One product that does this is the so-called drop-lock mortgage – read The most flexible mortgage in the UK to find out more or head to The tracker mortgage that protects you from rate rises to read about a similar new product.

10 tremendous fixed mortgages

10 top trackers

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