Yorkshire Building Society launches lowest mortgage rate on the market - but is it the cheapest?
Yorkshire Building Society has launched the lowest fixed-rate mortgage deal on the market, giving borrowers the option to lock in at 1.17% for two years.
The rate doesn’t quite match the lowest ever two-year fix, which was available in 2015 when HSBC lent at 1.05%. It’s not the best deal from Yorkshire Building Society either, who lent at 1.07% at the time.
To qualify, you’ll need at least a 35% deposit, and relatively high £1,345 initial fees mean it won’t necessarily be the cheapest deal.
Norwich and Peterborough Building Society (another brand in the same mutual), for example, will lend at 1.49% for two years with £635 initial fees.
Someone taking out a 65% loan-to-value (LTV) mortgage over 25 years on a £250,000 property will have monthly repayments that are £24 lower by opting for the Yorkshire deal over the offer from Norwich and Peterborough. But over the first two years, because of the higher up-front fees, it ends up £115 more expensive.
The difference is small - £115 over two years is just a pound a week, and for larger loans the difference in monthly repayments will be bigger, so it might be worth paying higher up-front fees.
Yorkshire Building Society has also launched an offset deal, fixed at 1.37% for two years for people borrowing up to 65% of their property’s value. The up-front fees are £1,345.
Offset mortgages let you link your mortgage to a savings or current account, which can cut your borrowing costs. Someone borrowing £100,000 with £40,000 in their savings account would only pay interest on the £60,000 net debt with an offset mortgage.
No interest is paid on the savings account, but the interest you forfeit is likely to be less than the amount you save from lower mortgage repayments.
Some people may also prefer offset mortgages if they want to keep a cash buffer instead of simply putting all their cash into their property and taking out a smaller mortgage.
Is now a good time to switch my mortgage deal?
In a word, yes. If you’re willing to shop around, mortgages are unbelievably cheap by historical standards.
- See our remortgage best buys.
This chart from the Bank of England shows how 90% LTV mortgages are the cheapest they’ve been in five years - in fact, they’re the cheapest on record - and two-year fixed rate deals at 75% LTV are hovering near record lows.
(Click the graph below to enlarge)
Source: Bank of England, 11.5.16
Not all mortgage costs are falling though.
Standard variable rates, the interest rate people pay after their fixed rate period (or discount period for variable mortgages) ends, have been steadily creeping up.
That’s nothing to do with the Bank of England’s interest rates, which haven’t changed since 2009.
Instead, it’s the same old story of companies charging loyal customers more in the knowledge that most won’t do anything about it. Ironically, most of the time this cash is used to cross-subside the best-buy deals that banks need to offer to attract people who do shop around.
A way of combining a mortgage and savings so the savings “offset” and reduce the mortgage. Rather than earning interest on savings, the savings reduce the mortgage and the interest paid on the borrowing, so savings are effectively earning interest at a higher rate than most mainstream savings accounts will pay. They are also tax-efficient, as savers avoid paying tax on interest that their deposits would otherwise have earned. Offset mortgages offer the disciplined borrower a great deal of flexibility, as overpayments can be made to reduce the term or monthly mortgage repayments, which can save thousands of pounds in interest payments over the mortgage term.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
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.