Nine super-cheap variable mortgage deals

Base rate is going nowhere, so why not take advantage of these ridiculously cheap mortgages?

I bought my house just over a year ago, so a couple of weeks ago got my first ever yearly mortgage statement. As satisfying as it was to see that we had come through the year easily enough, I can’t lie – my heart did sink a touch at seeing just how much I’ve forked out in interest over those first 12 months.

That’s because I wanted to go for a long-term fixed rate over five years. However, we have now had a year of Bank Base Rate at 0.5%, with little signs that it will be raised anytime soon. Indeed, plenty of economists have suggested Base Rate will stay at this record low for sometime yet.

And the way to take advantage of such record low rates is to go for a variable mortgage.

The sub 2% mortgage

Not that long ago, eyebrows were raised when one lender dared to offer a mortgage with an interest rate of less than 2%. Incredibly, there are now five mortgages which each offer sub-2% mortgages!

Last week saw the relaunch of HSBC’s 1.99% discounted variable mortgage, the deal which started it all. And it’s actually got better – the fee to get hold of the mortgage has fallen by £200 to £999!

However, it’s still far from perfect, as it is linked to the lender’s Standard Variable Rate rather than Bank Base Rate itself. That means it could increase at any time, irrespective of what’s happening with Bank Base Rate – a bit of a gamble in my book.

Here’s my round up of the amazing sub-2% mortgages:

Lender	Mortgage	LTV	Fee	Early repayment charges
Alliance & Leicester	Mortgage tracks Bank Base Rate + 1.34% (currently 1.84%) for two years	70%	2% of the advance	2% of the sum repaid in the first two years
Cheltenham & Gloucester	Mortgage tracks BBR + 1.49% (currently 1.99%) for 26 months	60%	3% of advance plus £99 booking fee	3% of the sum repaid in year one, 2% in year two
Lloyds TSB Scotland	Mortgage tracks BBR + 1.49% (currently 1.99%) for 26 months	60%	3% of advance plus £99 booking fee	3% of the sum repaid in year one, 2% in year two
HSBC	Mortgage tracks HSBC’s SVR – 1.95% (currently 1.99%) for two years	60%	£999	1% of sum repaid in first two years
Alliance & Leicester	Mortgage tracks BBR + 1.49% (currently 1.99%) for two years	70%	2% of advance	2% of the sum repaid in the first two years

The small fee tracker

One thing that is clear from all of those mortgages is that while the rate of interest is tiny, the cost of actually getting hold of the mortgage can be seriously punishing. If you go for the Cheltenham and Gloucester mortgage for example, and want a £150,000 mortgage, you will end up stumping out £4,500!

Related goal

Sell your home

If you want to obtain the best possible price when selling your home, then these ideas should help.

Do this goal

So if you want a mega-cheap rate, but don’t want to be shelling out thousands for the privilege, which rates should you be looking at?

In my view, the best around comes from First Direct. Available to borrowers with a 35% deposit, the First Direct product tracks Bank Base Rate plus 1.89% for the entire term of the mortgage. Even better it will only cost you £499 to get this marvellous term tracker. For more on why these deals are great at the moment, be sure to read Why I love the terrific term tracker.

You should also consider the marvellous two-year discounted variable from Earl Shilton Building Society up to 70% loan-to-value. Like the HSBC deal I looked at earlier, the Earl Shilton deal is linked to the lender’s SVR rather than base rate itself so it is a bit of a gamble. However, at a current rate of 2.45% and costing just £599 to get hold of, this mortgage might be too good to resist.

Finally, you should also take a look at the Northern Rock two-year tracker mortgage at Base Rate plus 2.10% for 25 months (currently 2.60%), available to borrowers with a 30% deposit, and costing just £595.

Adopt this goal: Sell your home

The small deposit tracker

Now, all of those rates look fantastic, and with good reason, but they are pretty limited in terms of who can get hold of them. We’d all love a 30% deposit, but for many buyers in the current market that’s little more than a pipedream.

Thankfully, a succession of great variable mortgages for borrowers with smaller deals have also been launched in recent weeks.

Here’s my round-up of the best variable deals for borrowers with smaller deposits.

Lender	Mortgage	LTV	Fee	Early repayment charges
Royal Bank of Scotland	Mortgage tracks BBR + 2.39% (currently 2.89%) for 26 months	80%	£1499
NatWest	Mortgage tracks Natwest Base Rate + 2.44% (currently 2.94%) for 26 months	80%	£999	3% of sum repaid within first two years
Cheltenham & Gloucester	Mortgage tracks Base Rate + 2.49% (currently 2.99%) for 26 months	85%	£99 booking fee, plus 3% of advance	3% of sum repaid in first year, 2% in year two
First Direct	Mortgage tracks Base Rate + 3.49% (currently 3.99%) for life of the mortgage	85%	£499	£149

Overpay, overpay, overpay

The great benefit of a fixed rate at the moment is not the low repayments per se, but rather the opportunity to pay off the mortgage quicker, and cheaper in the long run.

3 easy ways to reduce your mortgage

If you can afford to, y?ou should really take advantage of these low rates by overpaying. This way, you build up your equity stake in double quick time, protecting you from the threat of negative equity, but you also pay off the mortgage quicker, saving thousands in interest payments.

Most lenders allow you to overpay by 10% without charging you, though Halifax last week revealed they would be doubling this to 20% for variable borrowers. I wouldn’t be at all surprised if other lenders followed suit, which would only make variable mortgages look even more enticing.

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