Home loan for LESS than 1%: Are we in for a mortgage price war?

Is the mortgage price war back? There’s a deal at LESS than 1% and new 95% loans for first-time buyers… but borrowers still face a grilling

  • Hinckley & Rugby BS will launch a two-year discount variable mortgage at 0.99%
  • Meanwhile, a raft of state-backed 95% mortgages went live on Monday 
  • Experts say the surge in offers is a vote of confidence in the housing market

A mortgage price war could be in the offing as banks flood the market with fresh deals. 

Hinckley & Rugby Building Society will launched a two-year discount variable mortgage at 0.99 per cent on Friday, the first sub-1  per cent rate in a year.

Meanwhile, a raft of state-backed 95 per cent mortgages went live on Monday, Nationwide is boosting the amount first-time buyers can borrow and Santander is relaxing criteria for the self-employed.

Top deal: Hinckley & Rugby Building Society has launched a two-year discount variable mortgage at 0.99 per cent, the first sub-1 per cent rate in a year

Experts say the surge in offers is a vote of confidence in the housing market and economy as the UK emerges from lockdown. 

Chris Sykes, of mortgage broker Private Finance, says that Hinckley & Rugby’s new deal underlines an ‘encouraging environment’.

He adds: ‘It is pitching for that competitive, high-quality, low-LTV clientele that lenders like to have on their books to lower the overall risk of their lending proposition.’

Most lenders are returning to the 95 per cent mortgage market with rates of around 4 per cent, but Sykes believes competition will drive this down.

This in turn will lead to lower rates on lower LTV products, he adds. This is because if there is little difference between the rate on a 90 per cent and 95 per cent mortgage, for example, borrowers will simply plump for the higher LTV offer to get a bigger deposit.

But Sykes says all eyes will be on whether lenders start bringing back rates below 1 per cent on fixed-rate mortgages.

Loyalty costs £1,000 a year 

Around three million loyal mortgage customers are at risk of being overcharged by up to £1,000 a year each.

Citizens Advice found 42 per cent of borrowers whose fixed-term mortgage had ended since the start of the first lockdown had not switched to a new deal, meaning they will have been automatically rolled onto their lender’s standard variable rate, costing more.

One in five borrowers said the switching process was too time consuming or difficult.

A spokesman for trade body UK Finance says: ‘Lenders will always contact customers before fixed-rate periods end.’

The best fixed rate is being offered by Platform – at 1.06 per cent for borrowers with at least a 40 per cent deposit. 

Mortgage availability has improved in the first three months of the year but is expected to rise further thanks to a reduction in mortgage rates, an increase in high LTV mortgages and an easing of credit criteria.

Rachel Springall, personal finance expert at Moneyfacts, says: ‘It’s great to see rate competition within the mortgage market but it is vital borrowers compare the overall true cost of any deal.

‘Competition can prompt other lenders to become more confident and react with their own deals to entice borrowers.’

There are now 110 deals that offer 95 per cent mortgages available to borrowers, including 38 under the government guarantee scheme.

In January 2020, there were 313 first-time buyer mortgages available for those with a 5 per cent deposit, but by June, these had all been pulled amid economic uncertainty. Now, the cheapest 95 per cent five-year fix is at 3.45 per cent with Barclays Springboard.

Among the deals that are part of the government guarantee, Halifax is offering the lowest rate with a two-year fix at 3.73 per cent, although it comes with a £999 fee. Natwest is offering 3.9 per cent with no fee.

Katie Brain, banking expert at finance data firm Defaqto, says: ‘Although there have been a few products that have been briefly available during the pandemic, this is the first time we have seen mainstream lenders in the high LTV market in nearly a year.

‘The new government backed mortgages are very competitive if you want a two-year fixed deal.’

Meanwhile, Nationwide will become the first major lender to allow first-time buyers with deposits of 10 per cent or more to borrow 5.5 times their salary when it launches its Helping Hand mortgage later this month.

It means a couple who are first-time buyers with a joint income of £50,000 and a 10 per cent deposit could borrow up to £275,000.

The deal will be for first-time buyers only, and the self-employed will be excluded. However, last week Santander said it would set aside the 2020-21 accounting period if those running their own businesses had been hit financially by the pandemic.


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