10 February 2017

BORROWERS WELCOME THE RETURN OF THE SUB 1 PER CENT MORTGAGE

AT THE END OF LAST YEAR, THERE WAS SOME SPECULATION THAT WE HAD SEEN THE BACK OF THE CHEAPEST MORTGAGE RATES AS SWAPS – THE RATE LENDERS PAY TO BORROW FROM EACH OTHER – STARTED EDGING UPWARDS. HOWEVER, SANTANDER HAS JUST LAUNCHED ITS LOWEST EVER FIXED-RATE PEGGED AT 0.99 PER CENT.

The deal, fixed for 18 months, comes with a £1,499 fee and borrowers will need a 40 per cent deposit or similar level of equity in their home, to qualify. The move highlights the keenness of lenders to lend, with other lenders such as HSBC, Barclays and Aldermore all reducing their fixed-rate pricing this year.

Lenders have two options if they wish to drum up more business – to reduce rates and/or offer incentives such as cash back, or tweak criteria. There is always a risk that the latter may attract the attention of the regulator so cutting rates may be less controversial – as long as the lender can afford to take a further squeeze on its margins.

With so much uncertainty around, fixed rates are incredibly popular and cheap products such as this will encourage borrowers to lock into a deal. However, you should seek independent advice as to the length of time you fix for as opt for too long a period, such as ten years, and you could face a hefty early repayment charge to get out of the mortgage early if your circumstances change.

There are also downsides to short fixes such as the Santander product. Borrowers will need to remortgage in just 18 months’ time and frequent remortgaging can be costly, as you may have to pay another arrangement fee. There is also a risk as to what will happen with interest rates by that point as the UK could well be in the middle of its exit from the EU. However, a short-term fix may suit older borrowers nearing the end of their mortgage term who don’t want to lock in for a lengthy period of time.

Most borrowers tend to prefer longer-term fixes, such as five years, which give certainty for a reasonable period of time but not too long. There are plenty of competitive deals on five-year fixes with rates starting from around 1.78%

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