Mortgage blog: Rates set to hit record lows in coming weeks

Posted 29 October 2014

Falls in the cost of bank borrowing are set to result in UK mortgage rates hitting new record lows in the next few weeks. Strong competition between lenders is also pushing down prices with some experts believing that five year fixed rates may fall as low as 1.99% this autumn.

The news comes after a major High Street lender launched a discounted variable rate deal at just 0.99%. 

Fixed rates likely to eclipse previous lows

The cost of funds on the money markets has fallen sharply in recent weeks, giving lenders access to cheap money. ‘Swap’ rates have tumbled following recent low inflation figures which mean interest rates are likely to stay low until well into 2015. In addition, many banks and building societies are falling short of their annual lending targets and are aggressively pursuing new customers in order to bridge the gap.

Keith Osborne, editor of new homes portal whathouse.co.uk, said: “We thought we’d seen mortgage deals in the UK hit rock-bottom in 2013 but a combination of falling swap rates and strong competition means that we could be about to see some unprecedented deals.

“Five year fixed rates reached a previous low of 2.48% but there are strong signs that deals over the next few weeks will be available even cheaper. There is even a chance that we might see a five year product fall to below 2%.”

HSBC launches discount rate at under 1%

While fixed rates are tumbling, a leading lender has also launched a discounted variable rate deal at under 1%. HSBC has launched a two year discounted deal at 0.99% for borrowers with a 40% deposit. Available for loans up to £500,000, it comes with a £1,999 booking fee.

“This is certainly an eye-catching headline rate,” says Osborne. “However, there are two factors to consider. First, the fee for the deal is high and it’s important to factor in the arrangement fee as well as the monthly repayments when considering the overall cost of a mortgage. For smaller loans it may pay to consider a more expensive rate with a lower fee such as Norwich and Peterborough’s 1.44% tracker with a £345 fee.

“In addition, this is a variable rate product which means that payments will rise when HSBC decides to increase its Standard Variable Rate (SVR). And, because the deal is linked to SVR and not the Base rate, this could rise faster than the Bank rate.”

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