Price war forcing mortgage rates down.
There’s something of a rate war going on in the mortgage market at the moment. Lenders are offering record low rates in a bit to grab the top spot in the best buy tables.
The latest lender to rejig its range and unveil some fantastic deals is Yorkshire Building Society. Let's take a look at what it's offering, and how the deals measure up.
Targeting buyers with small deposits
Yorkshire has launched a new mortgage deal aimed at buyers with just a 5% deposit.
The deal is a two-year fixed rate at 4.49% and comes with a £845 product fee. It’s available to both first-time buyers and those looking to move up the property ladder.
How does Yorkshire’s 5% deposit deal compare?
Barclays' mortgage-arm Woolwich is offering first-time buyers a 95% loan-to-value (LTV) mortgage fixed for three years at 2.99% and no fee, so considerably less than Yorkshire’s deal, and it's fixed for longer too.
The catch is buyers need to take out a “Family Springboard Mortgage” and persuade a family member to put 10% of the property’s purchase price into a linked Helpful Start Account, which is a savings account. This enables Woolwich to offer lower rates in line with 85% LTV deals. After three years the “helper” gets their money back with interest, assuming all mortgage repayments are up to date.
For a more straightforward 95% LTV deal Hinckley & Rugby Building Society is offering a discount deal of 1.79% off the society' standard variable rate(SVR) for two years with an £800 fee. With Hinckley & Rugby’s SVR currently standing at 5.64% this means that you'll be paying a rate of 3.85%.
Although this rate is cheaper than Yorkshire's deal, there is a lot more uncertainty involved as an SVR can be increased at any time, irrespective of what's happening with the Bank of England's Base Rate.
Top deals for bigger deposits
Yorkshire Building Society has also launched some new mortgage deals aimed at borrowers with bigger deposits.
These include a two-year fixed rate at 1.54% with an £845 product fee, and a three-year fixed rate at 2.24% also with an £845 product fee. To be eligible for these deals you need at least 25% equity in your property.
Other deals on offer include a very competitive two-year fixed rate at 1.29% for borowers with a 35% deposit. This deal comes with a £845 fee. Also at 65% LTV it’s offering a new two-year 1.59% fixed rate mortgage with a £345 product fee.
Two-year fixed rate price war
Yorkshire is more competitive when it comes to borrowers with a large deposit or equity in their homes than buyers with just a 5% deposit.
For example, its two-year fixed rate at 1.29% is hard to beat. HSBC is offering a two-year fix at the same rate but a much higher £1,499 fee.
If you have 40% or more equity in your property and you’re remortgaging (i.e. not moving home) you can fix for two years with Woolwich at 1.79% and no fee.
Doing the sums
It’s important to do the sums and take into account both rate and fees before choosing a mortgage deal.
Let's take the two-year fixed rates as an example. I want to take out a a £250,000 repayment mortgage over 25 years. At the end of the two-year fixed rate period, Yorkshire’s 1.29% deal would work out best, costing a total of £24,253 in payments and fees. HSBC would charge a total of £24,907 and Woolwich £24,822.
It’s worth bearing in mind that the bigger your mortgage amount, the more important the rate, not the fee, becomes. If you had a £1 million mortgage you’d be better off paying a higher fee to get the 1.29% rate on offer, rather than opting for the low fee available on Yorkshire’s 1.59% deal.
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