Mortgage lenders, desperate to tempt borrowers to remortgage, continue to slash rates with the latest ‘record’ low hit this week on a 10-year fix from Yorkshire Building Society.
While the 2.89 per cent rate is not strictly the cheapest on the market, it is the best value for borrowers who have 25 per cent or more equity in their home or a 25 per cent deposit to put down.
The lowest rate ever recorded on a 10-year fix launched earlier this month from Coventry Building Society at 2.39 per cent, but to qualify borrowers need to put in 50 per cent of the value of the property.
By contrast, Yorkshire’s deal opens up access to longer-term fixed rates for many more borrowers hoping to take advantage of rock-bottom mortgage rates.
While it does have a £845 product fee attached, because the cost is spread over a decade Yorkshire’s rate comes in under the nearest comparable deal with no fee.
Monthly repayments on the Yorkshire deal for a £150,000 mortgage over 25 years come in at £703 and the total cost of the loan over the full term is £211,674, including the fee.
HSBC offers the nearest competitor 10-year fix with a rate of 2.99 per cent with no fee – on the same mortgage the monthly repayments for this deal are £711 and the total cost is £213,161.
Rachel Springall, from personal finance site Moneyfacts, said: ‘In times of uncertainty a decade-long fixed mortgage will provide borrowers with a long-term option to secure their monthly mortgage payments.
‘Borrowers must always work out the true cost of any deal and be sure that their circumstances will remain relatively unchanged for the next ten years so they can avoid early repayment charges.’
She added: ‘Borrowers sitting on a variable rate may well be paying over the odds for their mortgage, so fixing to a new rate right now could save customers cash by reducing their monthly mortgage repayments.’
Why are rates so low?
One of the more positive outcomes of the UK’s referendum decision to exit the European Union has been a fall in swap rates. These are broadly used by mortgage lenders to price mortgage rates available to borrowers.
At the end of April, five-year swap rates stood at 1.14 per cent and 10-year money at 1.55 per cent. Now they are 0.63 per cent and 0.88 per cent respectively.
Andrew Montlake, of mortgage broker Coreco, said: ‘This is some fall and as a result we have some extraordinary products now available including HSBC’s two-year fix at just 0.99 per cent. Meanwhile, five-year fixes across the board have fallen and are now available from just 1.99 per cent, again through HSBC, while most lenders have products to fit most clients’ circumstances pretty close to the 2 per cent level.’
On the flipside of Brexit is the likelihood that fewer people are opting or can afford to move home. The recent Royal Institution of Chartered Surveyors survey data was the first indicator of housing market sentiment, showing deterioration with a fall in both new buyer enquiries and properties coming on the market for sale.
The Council of Mortgage Lenders also warned earlier this week that higher loan-to-value lending ‘might edge down as borrowers and lenders trim their risk appetite at the margins during periods of uncertainty’.