Pay 1.99% on your mortgage - but hurry


Updated on 01 November 2010 | 2 Comments

Borrowers are rushing to get cheap mortgage deals before the Base Rate rises.

News that the economy is growing at a faster rate that expected has sparked a flurry of new predictions that interest rates will rise sooner than expected.

This, in turn, means borrowers are “scrambling to remortgage” before the best deals disappear, according to The Sunday Times this weekend.

We are currently witnessing some of the lowest rates on record being offered to borrowers, with one of the cheapest – a two-year tracker from Natwest at 1.99% - only available for the next 10 working days.

The question is: should you go for a  tracker with interest rates set to rise? Or would a fixed rate be a better strategy?

The big question

Fixed rates have come down massively in price during 2010. Indeed, in September they hit their lowest ever level, although have crept up very slightly since then. They are still historically extremely cheap though.

And this makes the decision to choose between a fixed a tracker rate a bit more difficult.

It was previously accepted that you would pay a pretty large premium for the safety of a fixed rate, and if you were willing to take a tracker you were rewarded by a significantly lower interest rate. After all, you were taking the risk that your repayments could rise if the Bank of England increased its Base Rate.

And, in fairness, average tracker rates are still significantly cheaper than average fixed rates. According to Moneyfacts, the average two-year fixed rate is now 4.48% and the average two-year tracker is 3.55%.

That’s a big difference, and on a typical £150,000 mortgage the average fix would cost you £832 a month, £77 more than the average two-year tracker at £755. Over two years that’s £1,848, assuming that interest rates don’t rise (which of course they are likely to during that time).

John Fitzsimons explains why the best mortgages offer you a bit of flexibility

However, they are the averages. If you have a sufficient deposit to access the best buy deals, the difference between fixed and tracker rates is not quite so wide. In fact, with a large number of tracker deals available under 3%, and an increasingly impressive range of fixes too, both look pretty tempting.

Cheapest deals

The trackers are of course still a bit cheaper, with the lowest coming in at 1.99%. This deal, from NatWest, requires a 40% deposit and a £999 fee.

Fixed rates are over half a percent more, with ING Direct’s two-year fix at 2.59% a stonking deal for anyone with 40% upfront (the fee is £945).

And there is a great deal more choice at under 3%, as the tables below show.

Can’t decide?

If you are torn between a fixed rate and a tracker you may be able to have the best of both worlds. Some lenders offer you the chance to take a tracker now, and then jump to the safety of a fixed rate if things get a bit hairy -- and they will waive any Early Repayment Charges that normally apply.

Barclays Woolwich has launched such a deal, aimed at remortgagors who are not sure which whether to go for a fix or a tracker.

Its Great Escape mortgage offers a fee-free, low-rate term tracker  at 2.68%, plus you are free to move onto one of the lender’s fixed rate deals at any point without incurring any Early Repayment Charges -- the lender does normally charge them but will waive them on this particular deal.

In addition, it comes with £300 cashback and free legal and valuation fees.

An alternative is to go for any term tracker, as most come without Early Repayment Charges anyway (Barclays Woolwich’s is an exception). This way you are free to move to a fixed rate at any time from any lender, giving you more options.

If you are looking for a new mortgage and you have a substantial deposit, you have your pick of the best deals available. Below are just some of the most attractive sub-3% mortgages available right now.

20 top sub 3% trackers

LENDER

TYPE OF DEAL

RATE

FEE

MAX LTV

NatWest

2-year tracker

1.99% (Base + 1.49)

£999

60%

First Direct

2-year tracker

2.19% (Base +1.69)

£99

65%

Santander

2-year tracker

2.19% (Base + 1.69)

£995

60%

HSBC

Term tracker

2.19% (Base + 1.69)

£99

60%

ING Direct

2-year tracker

2.29% (Base + 1.79)

£945

60%

NatWest

2-year tracker

2.29% (Base + 1.79)

Fee-free

60%

ING Direct

Term tracker

2.35% (Base + 1.85)

£945

60%

First Direct

Term tracker

2.39% (Base + 1.89)

£99

65%

Yorkshire BS

2-year tracker

2.39% (Base + 1.89)

£995

60%

Market Harborough BS

2-year tracker

2.48% (Base + 1.98)

£1,250

75%

Yorkshire BS

2-year tracker

2.49% (Base + 1.99)

£495

75%

The Co-op Bank

3-year tracker

2.49% (Base + 1.99)

£999

75%

HSBC

Term tracker

2.49% (Base + 1.99)

£399

70%

Leek United BS

3-year tracker

2.49% (Base + 1.99)

£995

75%

Barclays Woolwich

Term tracker

2.58% (Base + 2.08)

£999

70%

ING Direct

2-year tracker

2.64% (Base + 2.14)

£945

75%

ING Direct

Term tracker

2.65% (Base + 2.15)

£945

75%

Barclays Woolwich

Term tracker

2.68% (Base + 2.18)

Fee-free plus £300 cashback

70%

First Direct

2-year tracker

2.69% (Base + 2.19)

£99

75%

HSBC

Term tracker

2.79% (Base + 2.29)

Fee-free

70%

 

15 fab sub-3% fixes

LENDER

TYPE OF DEAL

RATE

FEE

MAX LTV

ING Direct

2-year fix

2.59%

£945

60%

Yorkshire BS

2-year fix

2.69%

£1,495

60%

Principality BS

2-year fix

2.74%

£1,499

75%

Santander

2-year fix

2.75%

£1,995

60%

NatWest

2-year fix

2.75%

Fee-free plus £250 cashback

50%

NatWest

2-year fix

2.75%

£699

60%

Yorkshire BS

2-year fix (offset)

2.79%

£1,495

60%

Post Office

2-year fix

2.79%

£1,495

65%

HSBC

2-year fix

2.89%

£99

60%

Market Harborough BS

2-year fix

2.89%

£1,295

70%

Yorkshire BS

2-year fix

2.89%

£495

75%

First Direct

2-year fix

2.99%

£99

65%

HSBC

2-year fix

2.99%

£399

70%

Yorkshire BS

2-year fix (offset)

2.99%

£495

75%

ING Direct

2-year fix

2.99%

£945

75%

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

Get help from lovemoney.com

If you need help getting the best mortgage use our resources.

First, adopt this goal: Cut the cost of your mortgage and pay it off early

Next, watch this video: Getting through the mortgage maze

Then, why not have a wander over to Q&A and ask other lovemoney.com members for hints and tips about what worked best for them?

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.

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