Lowest five-year fixed mortgage rate ever

Chelsea Building Society has launched a five-year fixed rate mortgage priced at just 3.19% in the latest series of home loan price plunges.

‘They can’t even give it away’ would, at a glance anyway, seem an apt quip to direct at the current mortgage market.

Rates hit an all-time low back in mid-2011, and have barely adjusted their trajectory since. According to Moneyfacts.co.uk, the average five-year fix is now 4.64%. One year ago it was 5.41%, while in July 2011 it sat at 5.16%.

In the midst of this rate tumble, right on cue, one lender has undercut the market again with a record-breaking deal.

Cheapest ever mortgage

Chelsea Building Society has been firmly on the front line of the battle to offer cheap mortgages over the past year. And in a new swipe at competitors, the lender has now unveiled the cheapest ever five-year fix, priced at just 3.19%.

The deal is available to borrowers with deposits 30% or more and has a fee of £1,495.

Chelsea’s new rate would cut monthly repayments on a £150,000 mortgage with a total 25-year term to just £726.23.

Hot on the tail of this five-year deal is a 3.24% rate from First Direct and 3.39% from Britannia and The Co-operative Bank.

But these low rates don’t necessarily mean that lenders are happy to ‘give away’ their cash to any old borrower.

The problems

To be eligible for the best mortgage deals, borrowers will need a hefty deposit or substantial amount of equity in their current home, as well as a gleaming financial history to pass the lender’s credit checks and a large wedge of cash to foot the fees bill.

Like the Chelsea deal, the top-of-the market First Direct, Britannia and Co-op mortgages all require a large deposit: 35% for First Direct and 25% for the latter two. This could prove a problem for both first-time buyers and those remortgaging thanks to current house price instability.

It’s also worth noting that as with all credit products, the lowest rates are often only available to those with a pristine credit history. So make sure you read How to stand the best chance of getting a mortgage for some tips on how to make yourself more attractive to lenders before you start applying.

On top of large deposit levels, high fees are another problem for cash-strapped borrowers. First Direct’s 3.24% rate comes with a £1,999 fee, while both the Britannia and Co-op mortgages cost £999.

And these hefty add-in charges are not unique to five-year fixes.

Low rate or fee-free?

As lovemoney.com revealed last month, average mortgage fee levels have ballooned by 70% over the past year as lenders attempt to fill the gap in profits left by low rate loans. So while the market may be packed full of headline-grabbing rates, when you add in the additional charges the overall price of the mortgage rises considerably.

This begs the question: should you pay a higher rate and no fee, or take the lower rate and shell out for a larger fee?

Well, the general rule is that low-rate, high-fee mortgages are better for those borrowing larger sums, while high rate, low fee deals are more suitable for small home loans. Looking at the total cost over the initial deal period is a good way of figuring out which camp you fall into.

For example, the total cost over the five-year period of the Chelsea 3.19% mortgage (including the £1,495 fee) if you were borrowing £150,000 for a total term of 25 years is £45,068.73. The equivalent total cost for the best fee-free five year fix - Co-operative Bank’s 3.59% deal (max LTV 75%) - is £45,491.70. That's £423 more.

However if you were borrowing just £100,000, the tables are turned, with the Co-operative Bank deal emerging £216 cheaper.

In fact, the exact tipping point at which both mortgages cost exactly the same over the five year period is with a home loan value of £116,920. If the sum you’re intending on borrowing is worth more than this, the Chelsea deal will be cheaper, less; the Co-op will be better value.

Of course you could add the fee to your mortgage, but this will push up your repayments as well as the amount of interest you’ll ultimately pay.

Ten fantastic five-year fixes

Here are ten of the best five-year fixes currently on the market:

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