Can fixed rate mortgages go any lower?
Yorkshire Building Society has launched a two-year fixed rate mortgage at 1.07%, the the lowest fixed rate to ever hit the market.
The move has led to speculation that fixed mortgage rates could eventually fall to under 1%.
The lowest fixed rate ever
In order to get your hands on this lowest fixed rate ever, you will need a 35% deposit or equity in their home. You will also need to stump up a £1,369 product fee.
There are other options for customers not keen on such a big fee. Assuming they have a 35% deposit, borrowers can get a two-year fix at 1.44% with Yorkshire by paying a fee of just £345.
The cheap two-year deals are Yorkshire’s latest attempt to undercut the competition. Earlier this year it launched a 1.18% mortgage, which at the time was its lowest-ever fixed rate.
Just last week the society began offering a range of fee-free mortgages with £1,000 cashback and free standard valuation for customers who don’t want to pay upfront fees.
Eagled-eyed mortgage rate watchers will remember that back in February HSBC offered a rate of 0.99%. However, this was a “discount” rate pegged to the lender’s standard variable rate (SVR), meaning the rate would increase if HSBC ups its SVR. The bank could do this at any time, irrespective of what happens with Bank Base Rate.
How does the YBS rate compare?
Chelsea Building Society charges slightly more at 1.08% with a slightly bigger £1,545 fee, while the Co-operative Bank has a two-year fixed rate at 1.09% with a £1,499 fee.
One mortgage that does rival it in terms of cost is Chelsea's two-year tracker at 1.09% with a £845 fee.
[SPOTLIGHT]Assuming a £200,000 repayment mortgage over a 25-year term, Yorkshire’s 1.07% rate would cost £19,611 over two years including all monthly repayments plus the fee.
Chelsea’s tracker comes out nearly £500 cheaper at £19,131 over two years. However, because it’s a tracker rate, not fixed, monthly repayments are not guaranteed.
Most experts predict that the Bank of England Base Rate will start to go up sometime in summer 2016. And when it does, the Chelsea tracker rate will increase too.
For borrowers who want security of payments, Yorkshire’s fixed rate will be the best option.
Should you fix for two years?
Although Yorkshire’s two-year fixed rate is a great rate, is fixing for two years a good idea at the moment?
Most two-year fixes revert to the lender’s SVR after the two-year tied-in period is up. Savvy borrowers will then remortgage to a cheaper deal, but this will involve credit checks, property valuations and affordability assessments all over again.
And if the base rate starts to finally go up next summer, as experts predict, what mortgage rates will be on offer in two years’ time? No one knows.
Ultimately a five-year fix offers more security and also means borrowers won’t have to go through the hassle of remortgaging again for another five years, as opposed to two.
Five-year fixed rates are dirt cheap at the moment – about the same level two-year fixed rates were this time last year.
According to Moneyfacts, the average five-year fixed rate mortgage is priced at 3.45% today. This is considerably lower than what the average two-year fixed rate was offering a year ago (3.73% in May 2014).
That’s just the average rate – the cheapest five-year fixed rates are much less.
For example, Chelsea Building Society has a five-year fixed rate at 2.14% available at 65% LTV with a £1,545 fee. Yorkshire Building Society charges slightly more at 2.19%, but with a lower £845 fee.
Get a better rate on your mortgage
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