The UK’s cheapest ever fixed rate mortgage has arrived with the Co-op Bank offering two year fixed rates at 1.09%. This follows on the heels of HSBC’s lowest ever five year fixed rate of 1.99%, with Barclay’s announcing a ten year rate of 2.99%.
These rates we could only have dreamt about before the financial crisis and they are very tempting. However the Co-op deal is only for a relatively short time with quite a hefty arrangement fee of £1,499. It is not too bad if you are borrowing hundreds of thousands, but if you are borrowing say £50,000 the arrangement fee adds around 1.50% per year on to your mortgage making the rate look more like 2.59% fixed over two years when there are rates elsewhere as low as 1.78% fixed with only a £30 fee. I think that this perfectly illustrates that all that glitters is not gold. Also in addition the loan cannot exceed 60% loan to value and therefore takes away a lot of potential from their deal.
This HSBC deal also mirrors the Co-op in that you need a 40% deposit and also an arrangement fee of £1,499 is required. As this deal is spread over five years the add-ons are not costing you as much on an annual basis, but never the less you may be better paying a higher rate for smaller loans with small fees from someone like Nationwide to enable you to have the lowest costs over the five years.
The Woolwich ten year deal at 2.99% is more generous in that the fee is smaller and the loan to value is is more in the market at 80%, so roughly speaking before fees we are looking at 1% over two years, 2% over five years and 3% over ten years. These deals as mentioned earlier would have been thought to be remarkable a few years ago, but as always before rushing into any of them now it is worth sitting back and working out your needs, requirements and long term goals.
If for example you are thinking of selling up and going abroad in the near future then a two year deal may be your best option. But if you are considering starting a family and you are not looking to move house for many years then possibly the longer term fixed rates may appeal. This is particularly the case if one partner is going part time or giving up their job for the medium term, as the last thing you would want to happen is interest rates to rise. Certainly in these circumstances long term fixed rates can be a great comfort but as always it is best to seek independent mortgage advice to help you make the right choice.
Kieron Bassett DipPFS
11th May 2015
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