Cheapest tracker mortgage rate falls to less than 1%
Interest is charged at 0.48% plus the Bank of England base rate, meaning the tracker's rate is currently 0.98% and will remain so until the base rate rises.
However, the deal is 'collared' at 0.98%, meaning that if the base rate was to fall, your mortgage rate would not be cut accordingly.
After the two-year period, the deal reverts to the lender's standard variable rate, which is 5.45% at the time of writing. The overall cost for comparison is 4.8% APR.
It is available to homemovers, buyers and those wanting to remortgage with a 35% equity stake or deposit (65% loan-to-value, or LTV) and comes with a hefty product fee of £1,545.
The true cost of a £130,000 mortgage required to buy a £200,000 property over a 25-year term works out at £488.76 a month based on the current interest rate. Over the two-year period, assuming base rate remains the same, you'll repay £13,275.19.
A £130 mortgage application processing fee and £90 mortgage redemption fee also apply and there is an early repayment charge of 1% if you exit the deal before 31 July 2017.
However, a 0.25 percentage point increase in the base rate would see the monthly repayment rise to £503.59. A 0.5 percentage point increase would take it to £518.70 and a rise of 1 percentage point would see it hit £549.75.
David Hollingworth, at mortgage broker London and Country, said: "This deal is clearly designed to snatch the title of the lowest rate on the market from the HSBC two-year discount with a current pay rate of 0.99%, even if it’s by the narrowest of margins."
He added: "Many will be better off looking for lower fees and lots of borrowers are interested in longer term fixed-rate deals with five-year rates available at a little over 2% (TSB is 2.09% for loans of £200k plus to 60% LTV, although there is a big fee of £1,995; Natwest is 2.19% to 60% LTV with a £995 fee)."
Last month, Chelsea's parent company Yorkshire Building Society, launched the UK's cheapest-ever fixed-rate mortgage at 1.07% over two years, but it comes with one of the most expensive fees on the market.
Homebuyers with a 35% deposit and those remortgaging with the same amount of equity are eligible for the deal, which comes with a £1,369 product fee.
Only a handful of other lenders charge higher fees on their most competitive fixed-rate deals – including Chelsea Building Society, Norwich & Peterborough and Virgin Money, according to moneywise.co.uk/compare.
With a tracker mortgage, the interest you pay is an agreed percentage above the Bank of England’s base rate. As the base rate rises and falls, your tracker will track these changes, and so rise and fall accordingly. If your tracker mortgage is Bank of England base rate +1% and the base rate is 5.75%, you will be paying 6.75%. Tracker rates are lower than lender’s standard variable rate (SVR) and as they are simple products for lenders to design, they usually come with lower fees than other mortgage schemes.
Changing mortgages without moving home. Property owners chiefly remortgage to get a better deal but some do so to release equity in their homes or to finance home improvements, the costs of which are added to the new mortgage. Even though you’re not moving house, you still need to engage solicitors, conveyancing and the new lender will require the property to be surveyed and valued.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.
This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.