Tesco launches two-year fixed rate mortgage at 1.99%

Supermarket giant Tesco is giving the banks a battering with this market-leading two-year fixed rate mortgage.

Tesco Bank is becoming more and more aggressive in its ongoing battle with Britain's banks.

For example, the UK's biggest supermarket slashed its personal loan rates last month, temporarily sending them right to the top of the best buy tables.

Now Tesco Bank has opened another front in the war for borrowers by launching a low-rate mortgage that is an instant table-topper. This is pretty impressive, given that the retailer only entered the mortgage market two months ago, in early August.

A home loan under 2%

Tesco has cut rates across its entire two-year, fixed-rate range for borrowers with deposits ranging from 30% to 40% of the purchase price.

For a two-year fix with a deposit of 40%, Tesco has cut its yearly rate by a whopping 0.65%. Here's what makes this deal today's clear market leader in its category:

According to Moneyfacts, the last time borrowers could bag a similar deal below 2% was a year ago, courtesy of Leeds Building Society. With a deposit of 40%, the average two-year fixed rate today is 4.15% a year, which is more than double Tesco Bank's rate.

Tesco batters the banks

To show you just how incredibly competitive Tesco Bank's deal is, we should check the entire mortgage market for the cheapest fixed-rate home loans over two years.

Based on a buyer (or remortgage customer) buying a £250,000 home with a £100,000 deposit and a low-rate loan of £150,000, here are the top five two-year fixes in this category:

Source: Moneyfacts

This table shows how spectacularly better Tesco Bank's latest two-year fix is than its competition.

Tesco is the only lender to charge a yearly rate below 2%. Indeed, the next-cheapest rate (from HSBC) is 0.45% a year higher. And it's the only lender to charge a fee below £1,000, with other lenders' fees ranging from nearly £1,500 to almost £2,000.

Frankly, for buyers or remortgage customers with deposits of 40% looking for a two-year fix, Tesco Bank wins by a country mile!

How a bank should be run

Benny Higgins, Tesco Bank's chief executive, promised earlier this week that the supermarket bank would lend at least £1 billion over the coming year at affordable rates. Clearly, with such ultra-low mortgage rates now on offer, the UK's number-one retailer aims to shake up Britain's ailing mortgage market!

Use lovemoney.com's innovative new mortgage tool now to find the best mortgage for you online

At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.

This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article.

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.

Your home or property may be repossessed if you do not keep up repayments on your mortgage

More on mortgages:

Chelsea launches market-leading five-year fixed rate mortgage

Bank of Scotland fined £4.2 million for 'inaccurate' mortgage records

Why ignoring tracker mortgages will cost you £££

Precise Mortgages: top deals from lender you've never heard of

Nationwide pulls out of interest-only mortgage market

The best long-term fixed and tracker mortgages