New mortgage price war begins as mutual launches record-breaking deal
A new mortgage price war has broken out after two of the UK’s major lenders cut the cost of their best deals.
Santander, the UK’s third biggest lender, has cut the price of many of its cheapest mortgages while the Yorkshire Building Society has launched a product that it claims is the lowest ever seen in Britain.
Mutual launches 0.89% mortgage deal
Yorkshire Building Society has launched a record-breaking mortgage deal which it says is the cheapest ever. The two-year discounted product has an initial rate of just 0.89%, beating the previous lowest rate by almost 0.1%.
The mutual says that it has been able to launch such a cheap deal because the cost of borrowing for banks and building societies has fallen by as much as 0.15% in the last month.
James Farrow, senior mortgage manager at Yorkshire Building Society, says: “The cost of funding has fallen in recent weeks and as a financially strong building society with no external shareholders to satisfy we have the ability to pass this on to borrowers.”
While this may be the cheapest deal on record, it won’t be suitable for everyone. This Is Money reports that “sceptics of Yorkshire Building Society claim the rate is a publicity stunt” because it is a variable-rate loan that requires a large deposit. Borrowers have to put down at least 35% to qualify for the deal, which also comes with a fee of £1,495. At the end of two years, the rate will revert to Yorkshire’s standard variable rate (SVR), currently 4.74%.
Santander cuts spark mortgage price war
With the cost of borrowing having fallen in recent weeks, other lenders have also cut the cost of their products, sparking a price war.
Following challenger lender Atom Bank’s new five-year fixed-rate mortgage at just 1.29%, Santander has also cut the cost of its cheapest mortgage deals. The UK’s third biggest lender has cut its best deal to just 1.14%, and has reduced the cost of other deals by up to 0.3%.
Miguel Sard, managing director of mortgages at Santander UK, says: “The mortgage market continues to be very competitive and we are pleased to be able to introduce this range of market-leading new products and rate reductions, providing customers with wider choice and enhanced value.”
The Daily Mirror reports that a 0.3% cut in the cost of borrowing would save a borrower with a £150,000 mortgage £264 a year. Independent financial expert Andrew Hagger told the newspaper: “Banks and building societies realise that they need to price aggressively if they are to achieve decent levels of new business as we see dwindling demand for mortgages, particularly as the housing market continues to slow.”