Mortgage blog: Five-year fixed rates fall below 3% again
Posted 12 September 2014 by Keith Osborne
For many mortgage experts, the withdrawal of the Funding for Lending scheme and an imminent interest rate rise meant that the days of the very cheapest mortgage deals were behind us. However, five-year fixed-rate mortgages have now fallen in price again and it’s once again possible to fix your home loan at below 3%.
But why has this happened with a base rate rise around the corner? And what are the best deals?
Lenders cut the price of five-year fixed rate mortgage deals
Two of the UK’s leading lenders have cut their five-year fixed rate mortgage deals to below 3%.
HSBC subsidiary First Direct has launched a deal at 2.89% fixed for five years. Available to 65% loan to value, there is a £1,450 fee. HSBC itself has launched a similar deal at 2.99%, available to 60% lending with a £999 fee. The West Bromwich Building Society has also cut its five-year fixed rate to 2.99%. To qualify you will need a 40% deposit and there is a £599 fee.
If you’re looking for a five-year fixed-rate deal and you have a larger mortgage then there are two further sub-3% deals available to you. Virgin Money has reduced the cost of its five-year fix to 2.99% for loans of between £200,000 and £1m. You need a 40% deposit and there is a £1,594 fee.
Woolwich is also offering a similar deal. You can fix for five years at 2.99% as long as you have a 35% deposit and you want to borrow more than £500,000. There is a £1,999 fee.
Why have fixed rates fallen?
Over recent months, the cost at which banks borrow from each other has been rising as the prospect of an interest rate rise increased. The Daily Telegraph reports that by July 2014 the cost of ‘swap’ rates had risen to around 2.2% and all five year fixed rate deals cost more than 3%.
However, five-year swap rates have now fallen to 1.95%, and the price of mortgage deals has fallen accordingly. In addition, a number of the UK’s major lenders are behind on their annual lending targets heading into the final quarter.
Keith Osborne, editor of whathouse.com, explains: “Most banks and building societies have an end-of-year target and if they are some way off this target they will be forced to cut the price of their deals to attract more business. As they make the cost of their deals cheaper other lenders have to follow suit in order to remain competitive. This can have the effect of driving down the cost of borrowing.”
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