Tesco Bank slashes mortgage rates


Tesco Bank has slashed the rates on its mortgage range, but only borrowers with at least a 40% deposit will benefit from the cuts.

Its two-year fixed rate mortgage now has a rate of 1.74%, rising to 2.29% for the three-year fix, and 2.49% for its five-year product.

However, despite the low rates, all the fixed-rate mortgages come with a high arrangement fee of £1,300 plus a £195 booking fee.

Tesco has also cut the rates on its two-year tracker mortgage, as well as introducing a new ‘thank you' scheme, which gives mortgage customers one Tesco Clubcard point per £4 repaid.

David McCreadie, managing director of banking, said the new rates "provide outstanding value to customers" and argued that the fees are "competitive".

Since the government introduced the Funding for Lending scheme last year, giving lenders access to cheap cash, banks have been offering record low rates for borrowers, as long as you have a bigger deposit.

Andrew Hagger of Moneycomms.co.uk says that if you took out the best five-year fixed rate in December, with a mortgage of £250,000, you could be paying £75 a month more than you would under Tesco's new deal.

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He said: "The rate cuts from lenders seem to be getting smaller and you wonder if we're almost at the stage where rates are bottoming out – for those customers sitting on an SVR of 4% or more, now's the time for a long hard look at some of the longer term fixed rates on offer."

How does Tesco Bank compare?

Five-year fixes

Norwich & Peterborough Building Society's (N&P) five-year fix offers a higher rate of 2.74% compared to Tesco Bank's, but has a much lower fee of £295.

Hagger says that if you were to take out a mortgage of £150,000 over a 25 year term N&P would work out cheaper, but if you were borrowing over £150,000 Tesco would offer better value.

Two-year fixes

The two-year fixed rate mortgage from Tesco Bank is better value – it equals the lowest rates on the market, but also has the lowest fee.

Three-year fixes

The three-year fix equals the rate of First Direct's current best buy, with the First Direct deal having a much higher fee of £1,999, but you only need a deposit of 35% for the mortgage.

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