TSB launches 'breathing space' mortgages

Mortgages come with lower interest rate in the first year.

TSB has launched a range of three-year mortgages which have a lower interest rate for the first year.

The idea behind these 'breathing space' mortgages is that the smaller mortgage repayments in the first year will free up the cash if you want to decorate or need to buy essential items like a new fridge.

The 'breathing space' mortgages are available to first-time buyers and home movers alike.

Here’s how the rates break down:

LTV	Year one	Years two and three
75-80%	1.49%	2.59%
80-85%	1.84%	2.94%
85-90%	2.99%	4.09%
90-95%	3.59%	4.69%

Buy to let, shared equity and shared ownership mortgages are excluded.

There’s a £995 product fee and a £265 Mortgage Account fee (paid over the full term) to think about too. You can overpay up to 10% of your outstanding mortgage balance each year without penalty, otherwise there's a 3% early repayment charge to cover for the fixed term.

Affordability checks are the same as they are on standard mortgages, as set by the Mortgage Market Review last year. So TSB will ensure you can afford the repayments in years two and three, not just the first year.

How much it will cost?

Let's say you want a mortgage over a 25-year term on a property that will cost £250,000. This is how much you’d be paying over the three-year fixed term, depending on LTV, with the mortgage fee included:

LTV (%)	Year one	Years two and three	Cost payable over fixed term (including Product Fee)
75%	1.49%	2.59%	£30,375.32
80%	1.84%	2.94%	£33,594.23
85%	2.99%	4.09%	£40,247.89
90%	3.59%	4.69%	£45,242.54
95%	3.59%	4.69%	£47,701.00

Let’s see how that compares to the mortgages with the lowest rates on the market right now:

Lender	LTV	Interest rate	Mortgage fees	Cost payable over fixed term
Chelsea BS	75%	1.99%	£1,675	£30,911
Buckinghamshire BS	80%	2.09%	£650	£32,413
Chelsea BS	85%	2.59%	£1,675	£37,159
The Co-operative Bank	90%	3.19%	£1,499	£41,305
The Family BS	95%	3.29%	£545	£42,683

Looking at both tables, it’s clear how much of a difference product fee makes. When TSB works out cheaper, it's because the product fees being charged by its rivals are very high.

Remember that a mortgage deal should be seen as a full package, taking initial period, rates and fees into account. You may be better off going for a higher interest rate but a lower mortgage fee.

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