Five-year fixed rate mortgages are at historically low levels and the level of choice is improving.
Last year July we wrote about how five-year fixed rate mortgages had hit their lowest level ever, with just a handful of deals available at under 3.9%.
Today, I have found 28 different providers offering mortgages under 3.9% from more than a score of banking groups. A big improvement.
11 of those providers now offer mortgages under 3.4% and four are under 3%. We don't know what the future holds but, in historical terms, that's an extraordinarily low rate for such a long period.
The five-year fixes under 3.4%
|
Lender |
Interest rate |
Booking and arrangement fees |
Free valuation?* |
LTV |
|
2.99% |
£1,300 |
No |
60% |
|
|
2.99% |
£1,500 |
No |
70% |
|
|
2.99% |
£2,000 |
No |
65% |
|
|
2.99% |
£2,200 |
Yes |
60% |
|
|
3.19% |
£1,300 |
Yes |
60% |
|
|
3.19% |
£1,250** |
Yes |
60% |
|
|
3.25% |
£700 |
Yes |
60% |
|
|
3.29% |
£500 |
No |
60% |
|
|
3.29% |
£1,000 |
Yes |
70% |
|
|
3.39% |
£1,100 |
Yes |
70% |
|
|
3.39% |
£800 |
No |
75% |
All these mortgages' fixed rate periods last at least five years and no longer than five years and three months. Fees have been rounded up.
*Valuation fees might be around £200 to £300. It varies though, and can be much higher for valuable properties. You might not always get a free valuation; it can depend what type of customer you are.
**After £250 cashback.
All of the above deals require that your mortgage is no more than 75% of the current value of your property, with most even requiring your mortgage is just 60% or less. In other words, you already have to fully own between a quarter and close to half your property to get any of these mortgages.
In contrast, if you need a 95% five-year mortgage, such as one offered by Cumberland Building Society, you're looking at twice the interest rate, at around 6%. That might add an extra £150 to your monthly bill if you have a £100,000 mortgage, which might mean paying 20% extra per month.
[SPOTLIGHT]In historical terms though, looking back over the decades, 6% is still a reasonable interest rate if you're locking it in for at least five years.
Four mortgages under 3%
But let's return to our table. Look at the top four, which are all under 3%.
These have large booking and arrangement fees. Except with first direct, the vast majority of these fees can be added to your mortgage, which means they'll cost you considerable interest over the next five years – and beyond. You could offset that damage by paying them up front, if allowed, or by overpaying on your mortgage at the first opportunity.
You cannot add first direct's £2,000 fee to the mortgage.
Yorkshire Building Society, Chelsea Building Society and some others offer offset mortgages at an additional cost that is not unreasonable and could save you money if you have enough savings. That said, it's easy to over-rate these mortgages and under-appreciate the extra cost, as I wrote in Offset mortgages won't save you money.
Hidden gems
Look at the Cumberland Building Society mortgage hiding in the bottom half of the table. Despite its higher rate, it could be better than the other mortgages due to its low fees, including a free valuation.
You're likely to do a fair bit better with it than Yorkshire Building Society if you have a £100,000 mortgage and 15 years remaining, for example, particularly if you have to add the fees to the mortgage because you can't pay them up front.
HSBC's mortgage is similar, even though it charges a valuation fee, because its booking and arrangement fees are even lower. With HSBC, you cannot add these costs to the mortgage anyway.
Some tips to help choose
Generally speaking, if you have a very small mortgage remaining you might be better off paying a lower fee and a higher interest rate, whereas those with moderate to large mortgages will be better off paying higher fees for a lower rate.
Most lenders, including those above, offer mortgages with higher interest rates and lower fees.
That said, you normally shouldn't pay hundreds more in fees for just a tiny decrease in interest rate.
Take for example the Chelsea mortgage at 2.99%. Chelsea actually has another mortgage at 2.94% with a tougher loan-to-value of 60%. However, for this fractionally lower rate you have to pay an extra £400 in fees. After playing around with some figures, I doubt most people would be better off with such a deal.
Yorkshire Building Society also offers a mortgage for 3.04%, so fractionally more expensive than its 2.99% mortgage. The loan-to-value is less demanding at 75%, making it more accessible. However, the fee is around £300 more. This could still be worth paying if you have a mortgage significantly over £100,000 – even if the fee is added to the mortgage and interest is charged on it.
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
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