Two major banks launch market-leading sub 4% fixed mortgage deals as rate war heats up
TWO of Britain’s biggest lenders have slashed rates to offer buyers some of the best deals on the market.
Barclays is tomorrow launching a five-year fixed mortgage with a market-leading 3.84% rate.
It comes after HSBC today launched a five-year fixed mortgage with a 3.95% rate.
Rival NatWest also chopped mortgage costs to offer sub 4% deals earlier this week and Nationwide has also recently dipped below the crucial mark.
However, Barclays’ 3.84% rate beats HSBC’s 3.95%, NatWest’s 3.97% and Nationwide’s 3.99%.
Barlcays product fee is £899, significantly lower than HSBC’s £999, NatWest’s £1,495 charge, as well as Natoinwide’s £1,499.
It means Barlcays is likely to offer better value to the majority of borrowers.
To get Barclays, HSBC or NatWest and Nationwide’s deals below 4% you’ll need to have a deposit of at least 40%.
This will rule out first-time buyers who typically scrape together deposits of 15% or less.
Instead, it’s likely those who have owned their home for a significant period of time and been able to take advantage of house prices to build up equity are most likely to benefit from this deal.
Experts said more lenders are now likely to follow suit and cut rates.
Nicholas Mendes, mortgage technical manager from broker John Charcol, said: “Barclays has overtaken HSBC as the best buy of the week heading into the weekend.
“The significant aspect of Barclay’s offer is the combination of a low rate and a manageable fee, making this deal highly attractive.
“This move signifies Barclays’ strong intentions in the market. Instead of making marginal rate decreases, Barclays has boldly offered a 3.84% rate, setting a new standard.
“Next, we anticipate similar moves from Santander and Halifax. August has started with strong competitive momentum.”
It comes after the Bank of England last week cut the base rate to 5% which, along with other money markets including SWAP rates, influences the cost of mortgages and other financial products.
Chris Sykes, technical director at broker Private Finance, added: “It is great to see another lender offering Sub 4% five-year fixed rates, if SWAPs keep at the level they are currently we could see more and more lenders entering that market in the coming days or weeks.
“All rate reductions are good for the borrower, and anyone with a current application in should look to see if they can get an improved rate.”
The very lowest rates may be reserved for those with a large deposit but rates are falling across the board.
The average two-year fixed mortgage rate today is 5.74%, down from 5.93% in May, according to data website Moneyfacts.
At the same time the average five-year fixed rate is now 5.36%, from 5.50% in May.
Tracker and variable rate mortgages often fall or rise in line with the base rate.
On the other hand, a fixed rate mortgage means your repayments are set for a period of time over the mortgage term – usually two or five years.
Even if rates fall, you typically won’t be able to change deals without paying large exit fees on the deal.
SHOULD YOU FIX NOW?
If you’re looking for peace of mind over your mortgage payment a fixed rate deal is likely to be the best option.
Your repayments won’t rise (or fall) for the duration of the deal so you can budget with confidence.
Most fixed-rate mortgages come with large early repayment fees, so if you believe you could want to exit the deal before the term ends – for example, if you move home – a variable rate without exit fees may be a better bet.
A good independent mortgage broker can help you weigh up the pros and cons of different mortgage options.
They should be able to calculate the overall cost of a mortgage helping you to work out when a high fee but lower rate may work or a lower fee and slightly higher rate is better.
How to get the best deal on your mortgage
IF you're looking for a traditional type of mortgage, getting the best rates depends entirely on what's available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio (LTV) has changed, you’ll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home’s value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you’re nearing the end of a fixed deal soon it’s worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You’ll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee – sometimes more than £1,000 – to the cost of the mortgage, but be aware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.