Wading through the vast array of fixed-rate mortgages is fast becoming a game of ‘how low can you go?’
Almost straight after HSBC launched the lowest ever five-year fixed-rate deal at 2.99%, Santander followed suit. Now NatWest is muscling in on the act too.
The new kid on the block
From today, homeowners can get a mega-low 2.95% mortgage with NatWest, fixed until 2017.
It’s only available via brokers and you need a deposit worth 40%. But the real drawback is the whopping £2,495 fee – which, as usual, is non-refundable if the deal falls through.
How does it compare?
There are other cheap mortgages around, but these mortgages have made us all excitable because it’s unusual for rates to be so low on fixed-rate deals that last as long as five years.
The added selling point with the NatWest and HSBC deals is that they’re available to new customers. With Santander’s five-year fix you need to be a current account customer.
When comparing the cost of the mortgage over the term it’s vital to do your sums, especially in light of giant fees.
For example, paying 2.99% with HSBC on a £120,000 mortgage (60% of a property worth £200,000) equals a repayment of £35,579 over five years, including the fee. With the NatWest option it would cost £36,395 with the fee added in, which is £816 more expensive.
If you want to shrink the size of the fee, Nationwide Building Society offers a deal on the same terms but at 3.39% for a £499 fee or a rate of 3.59% with just a £99 fee. This is good for borrowers who have a lot of equity in their home and want to switch deals but don’t have the cash to cover the big fees needed for the lowest rates.
You can eliminate fees entirely with another option from HSBC at a rate of 3.49%.
What about first-time buyers?
The ultra-low-cost deals are unlikely to benefit first-time buyers, unless you have a 40% deposit and enough left over for any fees and additional costs.
However, all is not lost if you only have a deposit of 10%. New buyers who want in on the five-year trend can fix at 4.99% with HSBC if you pay a £599 fee. Alternatively there’s a fee-free option at 5.39%.
Norwich & Peterborough Building Society charges 5.29% for a manageable £295 fee.
[SPOTLIGHT]Rates are likely to be significantly cheaper on shorter-term or tracker rates so first-timers should weigh up whether it’s worth fixing the mortgage long term.
What else is there?
NatWest’s new broker-only range also includes a five-year fee-free option at 3.69% for people with a loan-to-value of 60% (a 40% deposit).
For home equity that is neither huge nor small you can get a 3.39% deal with Nationwide for a 30% deposit and a £999 fee.
Alternatively, Leek United Building Society charges 3.69% in return for a 25% deposit and a £995 fee.
How do you choose?
First you have to find out how much equity you have in your home, which acts as the deposit for a new deal. Once you know what deposit you have, you will know which deals you qualify for. You can get a rough idea of house valuations from the likes of Zoopla or the Land Registry’s House Price Index. Compare this to the amount you have already paid off on your existing mortgage to get an estimated loan-to-value.
Then realistically assess your finances. Have you got £2,495 to spare? If not, you will need a deal with a lower fee. Can you spare some extra cash or absolutely none at all? Your answers will slim down or broaden your options but either way you can then find the cheapest home loan for your own personal circumstances.
It’s also worth remembering that although some of the deals look fantastic, they’re likely to be reserved for customers with the best credit scores. If that doesn’t apply to you then consider whether it’s better to apply for a decent home loan but one that isn’t the best buy.
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