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0.99% mortgage launched as rate war continues

0.99% mortgage launched as rate war continues

Category: Mortgages

Updated: 27/10/2017
First Published: 23/10/2014

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Mortgage holders are all set to be the winners of recent attempts from major lenders to charm borrowers with some extremely eye-catching rate cuts.

The deals are the latest in a string of rate reductions that have been made over the last few weeks as lenders strive to make their mortgages more attractive.

As a result, fixed rates are falling, with the average two-year deal currently available at a rate of 3.46%, down from 3.78% a month ago.

Five-year deals are also heading in the right direction, having dropped from 4.16% a month ago to stand at 4.01% today.

6 Months Ago 1 Month Ago Today
Average 2 Year Fixed Rate 3.65% 3.78% 3.46%
Average 3 Year Fixed Rate 3.97% 3.71% 3.63%
Average 5 Year Fixed Rate 4.04% 4.16% 4.01%

Source: Moneyfacts.co.uk

Compiled 21.10.2014

Competition hotting up

Of course, there are some rates that are even lower, particularly if you've got a significant deposit to put down. Currently, the lowest two-year fixed deal on the market comes from HSBC, which offers borrowers with a 40% deposit the chance to secure a mortgage at a rate of just 1.49%!

Much publicity has also been heaped on a new 0.99% deal from HSBC. Again available to borrowers with at least a 40% deposit, the deal is in effect a 2.95% discount off the bank's standard variable rate (SVR), which lasts for two years.

Of course, HSBC could decide to increase its SVR at any point, which would see the rate move above 0.99%, but the borrower would still get a rate 2.95% below whatever the new SVR is for the two years after taking out the deal.

Besides these market-leading mortgages, a whole host of other banks and building societies are rapidly re-pricing their deals with lower rates. The market is being flooded with product changes and new launches, so competition is most definitely on the rise.

Why are rates falling?

The recent slide in global stock markets, which has been pushing down the price of borrowing, is one reason why lenders have been able to cut their rates. At the same time, there is also an apparent desire among lenders to meet their end-of-year lending targets.

And in a clear about-turn from earlier in the year, when mortgage rates had been rising in anticipation of an imminent change to base rate, now that this seems unlikely to happen until at least the middle of next year, this same factor is having entirely the opposite effect and forcing mortgage rates down.

Playing an important part in provider's attempts to be seen to be offering the best deal is the remortgage market. Current homeowners will already have a mortgage and will probably be on a good rate, as many have been able to take advantage of record low mortgage rates since the financial crisis hit. Many are on their lenders' SVR – the rate that a lot of mortgage terms revert to after the initial deal period comes to an end – and these are also at historic lows.

That means borrowers are not compelled to search for a better deal as they're already enjoying a great rate where they are. But, this will all change when base rate rises, as it'll push up lenders' variable rates as a result. That's when borrowers will start looking at alternatives, and because they're no longer on a fixed rate, there's nothing to stop them from switching.

That's why providers want to offer such great rates, because they don't want to lose their current customers when they start to check out the wider market. And, even if they do lose a few customers, they'll hopefully recoup their losses by gaining new ones thanks to their rate cuts – it's all about preparation, and by cutting their rates so dramatically, providers are trying to stand out and appeal to the remortgage sector and new home buyers alike.

Get on board!

So isn't it time you got in on the action? These low rates won't be around forever, and when rumours start to resurface that base rate is about to rise, mortgage rates will quickly follow. So don't hang around! Whether you're thinking of taking the plunge and buying that first home, or are starting to think about remortgaging to a fixed deal that will protect you from any interest rate shocks, take advantage of these low rates while you can.

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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.