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:
|
Lender |
Max LTV |
Rate |
Fee |
|
70% |
3.19% |
£1495 |
|
|
65% |
3.24% |
£1999 |
|
|
75% |
3.39% |
£999 |
|
|
75% |
3.39% |
£999 |
|
|
75% |
3.59% |
N/A |
|
|
85% |
4.29% |
0.25% + valuation fee |
|
|
85% |
4.59% |
N/A |
|
|
90% |
4.99% |
N/A |
|
|
90% |
5.29% |
N/A |
|
|
95% |
5.99% |
£195 |
More: How an offset mortgage can save you £8,000 | Government details plans to help homebuyers and build more homes
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Comments
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As muffindell66 quite rightly says, the valuation and legal fees should also be taken into account when comparing the true cost of mortgages. Assuming we are looking at remortgages, many lenders provide free valuations and free legal fees, which can make quite a difference to the overall true cost of the deal. Looking at Chelsea's 'fantastic' 3.19% 5 Year Fixed Rate, which has a, higher than average, arrangement/booking fee of £1,495 plus a valuation fee that would be at least £325 (using the mortgage example in the article of £150k and therefore the minimum property value would have to be £214k) and legal fees, which would be circa £422 (again, at least). Therefore, the true cost over the initial five year period would be £45,815.70 As djv says, we should also take into account the reversion rate and although I agree with John that Chelsea's SVR will change over the next 5 years, it is all relative, in that the other lenders SVR's will also change, so we should compare them, as they are quite different to each other. Of course, they may not change at the same time or by the same amount when the Base Rate goes up and therefore they might not be so different to each other in a few years time, but the fact is that all things being equal over the 25 year term of the mortgage this deal will cost x and this deal y, and this will then show a true comparison of the products. Given Chelsea's relatively high SVR of 5.79% the true cost over the 25 year term for a £150k mortgage would be £263,588.50 including the £160 redemption/exit fee. So, is this 'fantastic' headline rate the cheapest deal? No, not by a long way. The Co-Op's fee free product at 3.59% (they also do a 3.39% fee-free product for existing current account holders) would cost £45,492 over the initial five years, and £238,132.73 over the term. So, despite the higher initial fixed rate, due to the lower fees, this product is over £300 cheaper. But, staggeringly, due to the lower reversion rate of 4.24% - the true cost of the mortgage over the 25 year term would be over £25,000 cheaper! Britannia's 3.39% rate is slightly better; free valuation and legal fees make the true cost over the initial five years £44,926.20 and over the term £237,446.68 - their reversion rate is also 4.24% And just to mention First Direct - they have a very good reversion rate of 3.69%, which would make this mortgage the cheapest over the term at £229,183.90. However, due to their relatively high fees, over the initial 5 years, they would be more expensive at £46,495.90 Overall I feel, the Britannia or Co-Op products (they're the same bank) at 3.39%, offer the cheapest deal for the client; an average arrangement fee, free valuation and free legals, a very good fixed rate for 5 years and a good reversion rate, should you decide or are not in a position to re-mortgage in 5 years time. And if you are prepared to move your current account to them and have two months salary paid in before the mortgage completes, you could get this rate without paying the £995 arrangement fee. In conclusion, the Chelsea may have brought out the lowest rate, but they haven't, for the majority of borrowers at least, got the cheapest mortgage and it is important to look at all the details - or get some independent financial advice, but I would say that!!
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To be frank another useless product that will not help the next generation of property owners who are forced into rent poverty, unable to build up the all inportant deposit.
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Hi djv After the five-year fixed term, the mortgage reverts to the lender's SVR. This is the case with almost all mortgages. At the moment Chelsea's SVR is 5.79%. However, in all honesty, I'm not sure how much putting that in the article would actually add, given that in five years' time the SVR is likely to be vastly different. Lenders can increase or decrease their SVR whenever they want, irrespective of what happens with bank base rate. So without a crystal ball, your guess of what Chelsea's SVR will look like in 2017 is as good as mine. Hope that makes sense John Editor
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03 February 2012