Mortgage wars: lenders are offering deals of less than one per cent as the competition hots up

A mortgage war is driving down home loan rates to record lows of less than one per cent as lenders compete for new business with tantalising cut-price deals.
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A mortgage war is driving down home loan rates to a record low of less than one per cent as lenders compete for new business. 

The Bank of England has signalled that base rates are unlikely to rise before the general election in May next year, meaning the era of ultra-low interest rates shows little sign of coming to an end. 

HSBC has raised the temperature in the price war by offering a two-year discount mortgage of 0.99 per cent, while Nationwide has cut its two-year fixed rate mortgage to 1.84 per cent. 


Lenders are also dangling cheap long-term fixed rates for borrowers who want protection against sudden interest rate hikes. Yorkshire Building Society has launched the UK’s lowest-ever 10-year fixed-rate mortgage at 3.89 per cent, available to borrowers with deposits of at least 25 per cent. The same lender is offering a five-year fix at 2.44 per cent.

Experts say rates are set to fall even lower. “The trend shows no  signs of abating,” says Mark Harris of mortgage broker SPF. 

Mortgage deals are more plentiful than at any time since the depths of the credit crunch in 2009. Today there are 12,265 mortgage deals available against just 3,158 five years ago. But prior to 2007, there were more than 30,000 deals on offer.

Borrowers are being reminded to check the small print. HSBC’s low-rate deal comes with a steep £1,999 arrangement fee and also requires a 40 per cent deposit. 

On average, repayments account for 40.6 per cent of borrowers’ income  in Greater London, according to Halifax Bank. But repayments could become unmanageable for many, should base rates rise. Fixed rates give buyers peace of mind that their monthly repayments will not rise, allowing them to budget better.

 Many mortgages now allow penalty-free overpayments of up to 20 per cent of the regular monthly repayment. By paying off extra each month, or via a lump sum, you can dramatically reduce the length of the mortgage. However, there are tough exit penalties if you come out of a fixed-rate loan before the due date, unless you are moving property. Often lenders charge five per cent of the outstanding mortgage.

Shop around, urges Kevin Mountford of online broker MoneySuperMarket. 

“Even if your current mortgage deal expires in a few months’ time, it is worth starting your search now, as often you can reserve or lock into a deal up to six months before you want it to kick in,” he says.

H&P partners; For independent, free mortgage advice, click here

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