Mortgage rates have been hovering at record low territory since last year, with providers still keen to compete and attract new borrowers. This has been perfectly highlighted in recent weeks – not only did challenger Atom Bank make waves when it launched a five-year fixed mortgage for the same price as a two-year deal, but today, Yorkshire Building Society has launched the lowest mortgage rate ever available.
The mutual has just launched a two-year discounted standard variable rate (SVR) mortgage priced at just 0.89%, the lowest on record, available at a loan-to-value (LTV) of 65%. This is alongside its two-year fixed rate mortgage offering of 0.99% (at 60% LTV), which is the joint lowest ever for a fixed rate deal, as well as the lowest currently available in this sector.
This in itself highlights the strength of the market at present, with competition clearly heightened. The mutual says that it's able to offer such low rates as the cost of funding is falling, and is passing on the reduction to its borrowers. Time will tell whether other lenders follow suit in the coming weeks, but either way, it's certainly a good time to start comparing mortgage deals!
The big question you may be facing is whether to take Yorkshire up on the offer of the lowest ever rate, or to opt for the security of a slightly higher fixed rate deal. This will always come down to your own individual circumstances, but it's worth bearing in mind the potential for variable rates to change at short notice.
Yorkshire's deal is offered at a discount of 3.85% on its SVR, which is currently 4.74%, but if the SVR changes, so will your rate – and your repayments. This means that, while there's the chance for the SVR to fall further, there's also the chance that it will increase, which will in turn lead to an increase in your variable rate and higher repayments.
This is why variable rate mortgages should only be considered by those who could comfortably absorb any increase in mortgage repayments; those who want to know exactly what they're paying for the duration of a mortgage term may want the guarantee of a fixed rate mortgage instead. Either way, there are luckily plenty of options to choose from.
"It's fantastic to see such low rates on offer from Yorkshire Building Society and the choice between variable or fixed deal will appeal to different types of borrowers," commented Rachel Springall, finance expert at Moneyfacts. "Those looking for more flexibility over the shorter term may prefer a discounted deal, but those looking for some security could choose the fixed rate. As with any option, borrowers would be wise to weigh up the entire package before entering any arrangement."
This means you'll want to take a close look at the extra features of a mortgage besides the headline rate, taking into account things like the fees and any incentives, to ensure you're getting a deal that offers the whole package. Use our Best Buys to compare the best mortgage rates and see the kind of options available, thereby ensuring you're getting the most cost-effective option.
However, you may want to take the opportunity to go one step further; as Rachel points out, "in such a low interest rate environment, it would be ideal for borrowers to consider overpaying their mortgage," as this could mean you pay less interest and even shorten your mortgage term.
Just make sure you check the conditions of your mortgage deal – fixed rate mortgages and even variable deals with an initial term will often only let you overpay by a certain amount each year, typically up to 10% of the balance, but even this could go a long way to reducing your financial commitments.
Many providers are focusing heavily on the incentives offered as part of a deal, too, highlighting another aspect of the mortgage rate war. But, as always, the key to getting the best possible option is to stay on top of things. If you're coming to the end of a fixed term, are looking to remortgage or want that all-important first-time buyer mortgage, keep an eye on our charts to be ahead of the game and take advantage of the battles ahead.
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