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Mortgage rates below 1% are BACK: Leeds BS’ new cheapest mortgage

Leeds Building Society has launched the cheapest mortgage deal since the Bank of England hiked the base rate to 0.75 per cent in August.

The society has launched a 0.99 per cent two-year discount mortgage available up to 65 per cent loan-to-value with a £1,999 fee, alongside a 1.47 per cent two-year discount mortgage up to 65 per cent loan-to-value with no fee.

After the end of the two-year term, each has a 1 per cent discount for a further three years.

Leeds Building Society’s new 0.99 per cent discount mortgage is the cheapest on the market

This marks the first time a lender has offered a rate below 1 per cent since the base rate hike in August.

There have been two interest rate rises by the Bank of England in the past year, moving up from 0.25 per cent to 0.5 per cent in November last year and then 0.75 per cent over the summer.

Despite this the average two-year fixed rate stands just 0.16 per cent higher than it did in November 2017, increasing from 2.33 per cent to 2.49 per cent, according to Moneyfacts.

High levels of remortgaging mean that lenders are still offering competitive rates to attract new borrowers even in the face of interest rate rises.  

But although mortgage rates remain low, with the average two-year fix creeping up just 0.02 per cent this month, banks and building societies are finding other ways to take advantage of the high level of borrowers remortgaging to find a better deal.

While many lenders are cutting or freezing rates to appear as attractive as possible, arrangement fees are on the rise.

Data from financial information firm Moneyfacts revealed that average mortgage fees have increased by £15 since August to stand at £1,005 this month – the highest average recorded in more than five years. 

That being said, even with a hefty fee of £1,999, Leeds BS’s new offering could still end up costing you less each month and in the long run than many of its competitors’ deals.

On a £200,000 mortgage taken over 25 years, you would end up paying around £753 a month and £20,067 over the initial two-year deal period.

Yorkshire Building Society has a 1.17 per cent two-year discount mortgage with a lower fee of £1,730 – but on a £200,000 mortgage taken over 25 years it ends up £16.40 more expensive each month and you’d pay an extra £124 over the initial deal period. 

And even deals with no fee can end up costing more. Platform’s two-year 1.94 per cent tracker mortgage on a £200,000 mortgage over 25 years would cost a whopping £89 more per month, and £138 more over the initial deal period including fees.

 There have been two interest rate rises by the Bank of England in the past year to 0.75 per cent

 There have been two interest rate rises by the Bank of England in the past year to 0.75 per cent

Moneyfacts mortgage expert Charlotte Nelson said: ‘For borrowers looking to minimise their monthly repayments this deal from Leeds is ideal.

‘This product is entering the market as the lowest deal available to borrowers, and is a worthy contender for any borrower with the required 35 per cent deposit.

What do the mortgage brokers think?

Broker L&C Mortgages' David Hollingworth

Broker L&C Mortgages’ David Hollingworth

David Hollingworth, mortgage expert at broker L&C Mortgages, said: ‘This rate is certainly eye catching, dropping a touch below the 1 per cent barrier and undercutting two-year fixed rates as well as other variable rate options.

‘As always it’s important to consider more than the headline rate. Base rate increased recently and there’s a chance that we could see further increases. 

‘Although this rate is not directly pegged to Bank rate there’s every chance that the standard variable rate would also rise and in theory could even rise more rapidly.

‘Borrowers should ensure that they would still be comfortable in dealing with higher payments.’

‘However, this deal is accompanied by a large fee so borrowers will have to do the maths to ensure this is the best deal for them.’

You can use This is Money’s new mortgage calculator to see the true costs of any mortgage by clicking here.

Should I be careful taking a discounted mortgage? 

Discounted mortgages are linked to a lender’s standard variable rate but tend to track it at a discount or margin above it. 

They can leave you exposed to the danger of rising interest rates, as their rate will rise when the Bank rate does. The pay-off is that rates tend to be more attractive than fixed-rate deals.

However, because your discount rate tracks your lender’s SVR – and you have no control over what that SVR is – a discount mortgage does not offer much rate stability.

Borrowers with large discounts below their lenders’ SVR may be in a particularly vulnerable position when their discount mortgage deals come to an end. 

This is because they could face large and sudden rate hikes when they’re transferred onto their lenders’ SVRs.

Leeds Building Society’s SVR currently stands at 5.69 per cent.  

So, if you’re on a tight budget and need your repayments to stay the same from month to month, it makes more sense to choose a fixed rate mortgage.

But if you do opt for a discounted rate, make sure you stress-test yourself against a sharper rise in base rate than is forecast. 

Nelson said: ‘As the Bank of England has promised rate rises for the foreseeable future it is hard to tell how many borrowers will be interested in this type of deal over a fixed rate.’ 

If you want the full breakdown on the difference between trackers and fixed rates, click here to read our guide.   

For a full rate check use This is Money’s mortgage finder service and best buy tables, supplied by our independent broker partner London & Country.

Read more at DailyMail.co.uk


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