Mortgage rates now at lower levels than savings accounts

Posted 18 February 2015

If you’re looking for a new mortgage over the next few months then there has never been a better time to be looking for a cheap deal. Indeed, interest rates have now fallen so far that there are over two dozen products which offer lower rates than the best easy access savings account interest rate.

The price of new mortgages has fallen so low that you could now profit from taking out a mortgage and placing the money in a savings account.

Why are interest rates on mortgages lower than on savings?

Research for a leading financial website has found that the price of new mortgage deals has reached unprecedented levels. This is Money has revealed that there are now 25 home loans priced below the best easy access savings deal – and that only pays 1.5%.

The research, conducted by analysts Moneyfacts shows that 25 mortgages are now available with rates below the best easy access savings account – a 1.5% product from Kent Reliance.

Recent data from the Bank of England showed that the average two-year fixed rate for a borrower with a 25% deposit is now 2.01% – down from 3.11% in January 2013. 

So how can lenders afford to lend at these rates? Keith Osborne, editor of, explains: “In the past, lenders have generally funded their mortgage lending using the money deposited with them by savers. This means they should charge a higher rate for a home loan than they do on their savings products.

“Now, though, many banks and building societies access their funding through the wholesale money markets. Low inflation, falling oil prices and slowing growth have meant that central bank interest rates are likely to stay low and this has pushed down the cost of borrowing on the money markets.

“As banks pay less to borrow money they are able to lend it at lower and lower rates, and this is what we are seeing now.”

Rachel Springall of Moneyfacts agrees. She says: “The main driving force behind these record low rates is the Funding for Lending Scheme, this pushed the cost of mortgages down and also increased the range of deals on offer as lenders rushed to lend out to prospective borrowers.

“The lenders who took part in the FLS borrowed cheaply from the government and relied less on their savings balance sheets to fund the cost of mortgages, which is why savings rates are so poor today. 

“These institutions must lend the money out and the quickest way to get new customers is by offering enticing low mortgage rates.”

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