Mortgage rates battle stepped up
The battle between mortgage lenders to offer ultra-low rates has been stepped up, with the launch of a two-year deal with a record low rate of 1.09%.
The Co-operative Bank has launched the fixed-rate loan, which is available to borrowers with a 40% deposit who can stump up an arrangement fee of £1,499.
Charlotte Nelson, a spokeswoman for financial information website Moneyfacts, said the rate on the deal is the lowest of its kind that the website has on its records going back to 1988.
Meanwhile, Barclays has announced plans to re-launch its innovative "family springboard" mortgage from May 6. The mortgage helps first-time buyers with only a 5% deposit to get on the property ladder by allowing their parents to put some money equating to 10% of the house purchase price into a savings account which is then linked to the mortgage.
First-time buyers taking out the fee-free mortgage will see a stepped reduction in the interest rate they pay over a three year period. This means that in the first year, someone taking out a loan would pay a rate of 2.99%, in the second year they would pay 2.79% and in the third year they would pay 2.59%.
The reducing rate would mean that a borrower with a £180,000 loan would save £636 over the initial three-year term compared with a three-year rate at 2.99%, Barclays calculated.
After the three years is up, the money held in the savings account would be released back to the parents with interest, provided that the mortgage repayments have been kept up to date.
As well as this, Barclays is launching a new five-year fixed-rate mortgage at 1.99%. The rate is available for borrowers with a 40% deposit and comes with a £1,999 fee.
HSBC also recently launched a a five-year fixed-rate mortgage onto the market with a rate of 1.99% for people with a 40% deposit, making that deal the lowest of its kind that Moneyfacts had ever recorded.
According to Moneyfacts' records, the average rate on a five-year fixed rate mortgage lenders are offering across all deposit sizes was 3.55% last month, having fallen from 4.04% a year ago. Five years ago, the average five-year fix came with a rate of 5.87%.
Experts have predicted the Bank of England base rate is likely to remain at ultra-low levels for some time yet, keeping the cost of borrowing relatively low.
A recent Bank of England credit conditions survey of banks and building societies found that mortgage availability is set to increase further in the coming months.
Lenders told the Bank they expect demand for mortgages for house purchase to increase in the coming three months and that they have become more willing to lend to people with deposits under 10%.