Borrowers looking to capitalise on cheap money flowing into banks and building societies have been delivered another round of record low mortgage rates.
Both a new record low rate five-year fix and two-year fix have landed in the best buy tables over the past week, with those with the biggest deposits or largest amount of equity in their homes once reaping the greatest rewards.
The Post Office is now offering a five-year fixed rate mortgage at just 2.74 per cent for those with a 40 per cent deposit, while HSBC is offering a two-year fix at 1.98 per cent for those in a similar position.
Home trap: Borrowers have seen the best fixed rates fall to new record lows - but they should beware big fees.The best tracker rates have also fallen once more, bucking a trend lasting almost a year that had seen them remain relatively stable while fixed rates fell.
Once more for those with 40 per cent deposits, HSBC is now offering a lifetime tracker at 2.38 per cent (base rate plus 1.88 per cent), while Nationwide has a five-year tracker at 2.59 per cent.
Mortgage rates have been driven down by the Bank of England and Government’s Funding for Lending scheme, which aims to push at least £80bn of cheap money through banks and building societies to borrowers.
While the flurry of mortgage cuts spells good news for homeowners looking to nab lower monthly payments, they also highlight the importance of watching out for the fees trap that lenders are setting.
HSBC’s two-year fix may bust the previous benchmark for a record low rate at 1.99 per cent, but it comes with a £1,999 fee, whereas those borrowers who opt to pay 0.01 per cent more can pay less than half that fee at Yorkshire BS.
YBS has a two-year fix at 1.99 per cent with a £995 fee for those with a 40 per cent deposit, as does Norwich and Peterborough BS. Opt for these marginally higher rates and a borrower with a £150,000 mortgage would pay 73p per month more in interest but save £986.49 overall over the course of the two-year deal thanks to the lower fee, This is Money’s true cost mortgage calculator shows.
For the other rates mentioned above fees also vary. The Post Office five-year fix carries a £995 fee, while the HSBC tracker has a £1,499 fee and the Nationwide tracker a £99 fee.
Borrowers looking for a new mortgage should ensure that they take fees into account, as for some it may be worth opting for a higher rate but lower fee, or even fee-free mortgage.
The general rule of thumb is that the larger your mortgage the more worthwhile it is paying a bigger fee to secure a low rate, however, when the gap between rates narrows it becomes much harder to make the extra cost of a big arrangement fee back.
The best mortgage rates remain on offer only to those with large deposits, but costs for borrowers further down the tree have also fallen.
A recent report by the Council of Mortgage Lenders showed wider availability of loans requiring less than ten per cent deposits – as well as predicting more such high loan-to-value lending would be made available this year.
Last week the Post Office cut the rate on its five-year fixed rate deal to 4.55 per cent for homebuyers with a 10 per cent deposit.This made it the most competitive five-year fix for smaller deposit holders. It also comes without a fee.
This Post Office deal undercuts a similar offer from First Direct - an offshoot of HSBC - by 0.04 points. The First Direct deal is also fee-free.
The next best offering comes from HSBC, with a 4.69 per cent rate and a £599 fee.
Scraping together some extra cash will still pay off, however.
David Hollingworth, of mortgage broker London & Country, says: ‘Hopefully, rates will tickle down as more lenders benefit from FLS, but the best way to get a keen loan rate is by putting down a bigger deposit.’
He says a first-time buyer purchasing a £139,921 house – the average price paid by this group last year according to Halifax – with a five-year fix would see monthly payments differ by more than £318, depending on how much they put down.
A five per cent deposit (£6,996) would secure a 5.49 per cent deal from Hanley, resulting in monthly repayments of just over £815. A 25 per cent deposit (£34,980) would allow the same first-timer to lock into a 2.99 per cent rate from Yorkshire Building Society with monthly repayments of just over £497. This assumes the mortgage is set up on a repayment basis over 25 years.