Mortgages cost less than inflation

Mortgage interest rates are usually much higher than inflation, but right now they're considerably lower.

They say if you take out a student loan it is effectively free money. That's a bit simplistic, but in a sense it's true. If your only alternative to taking out a loan is to save for several years, during those endless months of penny-pinching you can expect the costs of going to university to rise. This means you have to save extra to make up for those costs.

If you borrow upfront instead, and you borrow at a cost no higher than inflation – which is what you currently do with student loans – you can get the degree done sooner and for roughly the same cost as if you waited and saved. The difference is you can pay for it later when your income is high enough to do so.

For some things, an interest rate higher than inflation is worth paying for. If you embark on a degree that will give you excellent job prospects afterwards and a high salary, that would be worth paying more than inflation for in order to get the rewards sooner.

The same goes for buying a home. The return on your investment is that it's a safe place you can't be kicked out of by the landlord, it's an asset you will own completely in a few decades, and it removes your obligation to pay rent.

Looking back at data from the Bank of England and National Statistics, mortgages usually cost about 2.5% to 3% more than inflation, including fees. That's usually worth paying for to escape rising rents. You can read more about that in Property doesn't beat inflation.

However, right now, mortgage borrowers have a massive bonus, and that is that many mortgages are so cheap that we can borrow for less than inflation.

Here's just a selection of mortgages, based on a £100,000 loan, which are at least one percentage point cheaper than inflation including costs and fees:

Mortgages cheaper than inflation

Source: the lovemoney.com mortgage centre. Estimated pound amounts are rounded to nearest ten.

But these aren't just a handful of unusually cheap ones: there are many more out there, and it applies to all types of mortgage, from trackers to fixes, from two-year deals to ten-year ones.

Bank of England data shows that if you average all the current best deals from the largest 80% of the market, you will still pay less than inflation – by closing on two percentage points. Glancing back over the past four or five decades, I doubt there was another time where borrowers have had this sort of luck with interest rates.

Eventually, something has got to give. Perhaps interest rates will rise five to eight percentage points to a differential we have gotten used to in the past. Alternatively, inflation has to fall far. In the meantime, we can enjoy the cheapest mortgages we've possibly ever had.

I particularly like ten-year fixes and it's just partly for the above reasons. The cheapest ten-year fix is currently from Chelsea Building Society at 3.99%. For this mortgage to return to the levels above inflation that we are used to from the past, inflation has to fall to less than one percent for the vast majority of the next ten years.

There were already great reasons to fix for ten years towards the end of last year when interest rates were about 5%, as I wrote in Pay 5% on your mortgage for a decade. Now at less than 4% I think it's crazy for anyone looking to switch not to consider it, personal circumstances permitting. If that's too long, five-and seven-year fixes are also great next best choices. I can't guarantee they'll be the cheapest, but please read the article for why they could be the right selection for you.

More: Compare mortgages through lovemoney.com | Buy a property with a 5% deposit | The most expensive homes on the market