Lenders began to dip their toes back into low-deposit mortgage lending this month as the Government’s stamp duty cut gave the housing market a boost.
Nationwide, the UK’s largest building society, and fellow giant Coventry BS have said they will offer up to 90 per cent loan-to-value deals once more, after they and other lenders axed them through lockdown.
Lenders pulled up the drawbridge in the wake of the pandemic over worries about the economy and house prices, leaving borrowers with small deposits with nowhere to go.
Now there are hopes that restrictions may ease as the Chancellor’s stamp duty holiday up to £500,000 until 31 March 2021 gives the property market a shot in the arm.
Lenders have quietly reintroduced some deals to the market since the initial rush to cut
Low-deposit deals remain scarce however and experts say that it’s unlikely that any other large lenders will reenter the space immediately.
This long-running guide can help you find the best deals that are still on offer, and will be regularly updated as deals are reintroduced.
You can check best buy tables and the best mortgage rates for your circumstances with our mortgage finder powered by London & Country – and figure out what you’ll actually be paying by using our new and improved mortgage calculator.
While there are fewer mortgage deals around at the moment, it could still pay to switch.
Borrowers on their lenders’ standard variable rates could save hundreds of pounds a month by switching, for example.
Mark Gordon, director of money at Compare the Market, said: ‘Languishing on a lender’s standard variable rate mortgage is likely to cost you thousands of pounds more than you need to pay.
‘While there are fewer mortgage products available on the market than usual at the moment, with the housing market slowly restarting again and physical property valuations able to take place once more, there are still plenty of good rates to choose from by looking around online.’
The attraction of a two-year fix may be lower rates now and extra flexibility, but that comes at the expense of needing to remortgage in two years to avoid slipping onto a more expensive standard variable rate.
A five-year fix gives the opportunity to lock into a low rate for a longer period and avoid extra fees and higher rates in a relatively short time.
Unless you have a good reason to take a two-year fixed rate, such as needing to move or expecting to have to sell your home, brokers have suggested that five-year fixed rates might be a cheaper long-term bet.
About what next for mortgage rates?
This is our long-running mortgage rates round-up that looks at the mortgage market and what to consider when looking for a loan.
It has been running for more than eight years and is regularly updated.
Older reader comments are left in place, so people can see what was being said in the past.
Whatever the right type of mortgage for your circumstances, shopping around and speaking to a good mortgage broker is a wise move.
Borrowers should have a quick look at the rates below. These are regularly updated by This is Money’s mortgage team. If you spot a deal you think has been pulled or should be in there, email us via [email protected] with mortgage rates in the subject field.
For a full rate check use This is Money’s mortgage finder service and best buy tables, these are supplied by our independent broker partner London & Country.
Best fixed-rate mortgage deals
Bigger deposit mortgages
Five-year fixed rate mortgages
Barlcays has a five-year fixed-rate mortgage at 1.36 per cent with a £1,048 fee at 60 per cent loan-to-value
Virgin Money has a five-year fixed-rate mortgage at 1.39 per cent with a £995 fee at 60 per cent loan-to-value
Two-year fixed rate mortgages
Virgin Money has a two-year fixed-rate mortgage at 1.16 per cent with a £1,495 fee at 65 per cent loan-to-value
West Brom Building Society has a two-year fixed-rate mortgage at 1.14 per cent with a £999 fee at 60 per cent loan-to-value
Mid-range deposit mortgages
Five-year fixed rate mortgages
West Brom BS has a five-year fixed-rate mortgage at 1.49 per cent with a £999 fee at 75 per cent loan-to-value
Yorkshire Building Society has a five-year fixed rate mortgage at 1.50 per cent with a £1,909 fee at 75 per cent loan-to-value
Two-year fixed rate mortgages
Leeds Building Society has a two-year fixed-rate mortgage at 1.14 per cent with a £1,999 fee at 75 per cent loan-to-value
West Brom BS has a two-year fixed rate mortgage at 1.24 per cent with a £999 fee at 75 per cent loan-to-value
A note on rates
Rates can change on mortgages at short notice and sadly lenders do not always inform us when they alter them (especially if they raise rates rather than lower them).
This can lead to occasions when the rates listed here are not available. If you ever spot this situation – or a good rate we have not listed – please email [email protected] with mortgage rates in the subject line and we will update the round-up asap.
Best tracker rate mortgages
Tracking a 0.10 per cent Base Rate may seem an odd decision when rates are likely to only go up – and you could fix for up to five years at a lower rate – however, there is one big advantage to a good lifetime tracker, flexibility.
A fixed-rate mortgage will almost inevitably carry early repayment charges, meaning you will be limited as to how much you can overpay, or face potentially thousands of pounds in fees if you opt to leave before the initial deal period is up.
You should be able to take a good fixed mortgage with you if you move, as most are portable, but there is no guarantee your new property will be eligible or you may even have a gap between ownership.
A good lifetime tracker has no early repayment charges, you can up sticks whenever you want and that suits some people.
Make sure you stress test yourself against a sharper rise in base rate than is forecast.
Melton BS has a lifetime discounted variable rate at 3.00 per cent for the term, currently at 1.99 per cent with fees of £260 at 75 per cent loan-to-value.
First Direct has a tracker at base plus 1.99 per cent for the term, currently at 2.09 per cent with fees of £490 at 60 per cent loan-to-value.
Cumberland Building Society has a two-year discount of 2.88 per cent – currently 1.21 per cent – with fees of £999 at 60 per cent loan-to-value
Barclays has a two-year tracker at base plus 1.14 per cent – currently 1.24 per cent – with fees of £1,098 at 60 per cent loan-to-value
Watch out for discount rates, as these track a rate set by the lender rather than following the path of the Bank of England base rate.
Most lenders move their internal variable rate in line with the base rate, but they don’t have to, meaning you could see your rate rise even if the base rate stays put.
Banks and building societies have broadly got to grips with the tougher new mortgage rules introduced more than four years ago in April 2014.
But getting a mortgage is tougher than it once was. You will need to get your finances in order and be prepared for the lengthier application process and in-depth affordability interviews getting a mortgage requires nowadays.
Lenders also apply different standards to what they will lend.
Weigh up the above, check the rates here and in our best buy mortgage tables, have a scout around what the best deals look like – and speak to a good independent broker.
There are a couple of things to look out for if you do decide to fix.
You need to check the bumper arrangement fees are worth paying – if you don’t have a big mortgage you may be better off with a slightly higher rate and lower fee.
It’s also wise to think carefully about whether you expect to move home soon. A good five-year fix should be portable, so you can take it with you.
But your new property will need to be assessed and you might need to borrow extra money, and so your lender could still say no. Getting out of a fixed rate typically requires a hefty hit to the pocket from early repayment charges.
Today’s low rates may stick around, they may even inch a little lower, but they may also be swiftly axed.
If you think you’d kick yourself if you miss out on one, then set aside some time to consider what to do.
Compare true mortgage costs
Work out mortgage costs and check what the real best deal taking into account rates and fees. You can either use one part to work out a single mortgage costs, or both to compare loans
What decides mortgage rates?
Mortgage rates and savings rates are part of a complex financial web that draws on official lending costs, ie base rate, money market funding costs, and competition for savers’ deposits.
Banks use savings deposits to back mortgages as well as money market borrowing, while building societies are limited in how much of the latter they can use.
Typically money market costs tended to move in line with the Bank of England’s base rate, with Libor about 0.1 per cent above it and swap rates reflecting what the market thinks interest rates will be over a set period of time, ie two years, five years etc.
The credit crunch put an end to this relationship temporarily, but things then returned almost back to normal.
Generally, a rise in Libor or swap rates will push up mortgage costs and a fall will allow lenders to cut them.
But mortgage lenders’ levels of confidence and their access to funding are equally important to rates. Things were pretty tight here for quite some time after the financial crisis and that kept rates relatively high.
The pick-up in the property market and the economy, along with a healthier outlook for banks and building societies has boosted confidence. Rates are now at exceptionally low levels but mortgages are harder to get than they once were.
Lending is a long way off the easy credit days of pre-2007 – and rightly so.
Choosing a mortgage – the essential quick guide
1. How big a deposit do I need?
To get the full choice of deals raising a decent deposit is still vital. The benchmark figure is 25 per cent, if you have this then you’ll be getting close to the best rates, although for an absolute cheapest deal you’re still likely to need 40 per cent.
However, a selection of better deals for smaller deposits is also now available.
2. Should I take a fixed rate?
The consensus is that there will be no dramatic sudden interest rate increases. However, these forecasts are no guarantee that rates won’t rise and when rates do rise trackers will get more expensive.
Borrowers needing security should consider the extra cost of a fix as worthwhile. If you are taking a tracker because you couldn’t afford the equivalent fixed rate then you are putting yourself in a very dangerous position.
If you decide to take a fix you need to carefully consider how long for. Two-year deals are cheap but only offer very short-term security and incur extra costs when you remortgage. Five-year deals lock you in for longer and come with slightly higher rates but better security and no need to remortgage in a relatively short space of time.
3. Should I take a tracker rate?
Tracker rates are essentially a gamble. What looks like a bargain rate now, could soon get very expensive when interest rates rise.
Anyone considering a tracker needs to make sure they are not just storing up a problem for the future. If the tracker comes with an early redemption penalty that would make it expensive to jump ship, then make sure your finances could take a rise of at least 2 per cent to 3 per cent in interest rates.
For that reason we at This is Money like tracker deals that fit into one of these three categories: no early redemption penalties, a cap to how high the rate will go, or that let you jump ship for a fixed rate if rates rise.
4. Should I get off a standard variable rate?
Standard variable rates are what borrowers slip onto by default when they finish a fixed or tracker deal period.
They can typically be changed by lenders at any time – without the Bank of England moving rates, they may also rise or fall by more than any move in base rate.
A number of mortgage borrowers have fallen victim to lenders hiking their standard variable rates in recent years, despite the base rate remaining stable.
Never forget that without a Nationwide-style base rate lock guarantee, your SVR could be hiked at any time, as could a discount rate linked to it.
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