HOUSE THAT
Major bank launches market-leading mortgage rate of 3.97% as battle to push interest rate lower ignites
Plus we explain the different types of mortgages that might work for you
A MAJOR high street bank has launched the lowest fixed rate mortgage deal on the market.
Mortgage rates have continued to fall following the Bank of England's decision to reduce the base rate - and the move has spurred NatWest to come out with an ultra low deal.
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The lender is now offering a five-year fixed rate at 3.97%, trumping rivals.
The deal comes with a £1,495 fee and just about beats Nationwide Building Society's 3.99% as the lowest rate on the market.
Someone repaying a £350,000 mortgage over 25 years would pay £1,473.31 a month if they got this deal.
Prospective buyers should be aware that the deal is only available to home movers buying a property with a deposit amounting to at least 40% of the purchase price.
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The deal is also for first time buyers and home movers and not for those remortgaging.
To apply for the rate, borrowers have to apply directly to the bank and cannot go through a broker.
Nicholas Mendes, mortgage technical manager, at John Charcoal, said the deal could be attractive for those wanting to budget.
He told The Sun: "The fixed rate for five years offers stability in monthly payments, which can be particularly attractive for those looking to manage their budgets, stability can make financial planning easier and provide peace of mind for homeowners."
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A fixed rate mortgage means your repayments have a fixed interest rate for a period of time.
Therefore you’ll pay off the same amount every month, for the length of your introductory deal, usually for two to five years.
What is the Bank of England base rate and how does it affect me?
When the fixed rate period ends, your rate will change to the lender's standard variable rate (SVR).
With an SVR mortgage, your mortgage payments could change each month, going up or down depending on the rate.
Martyn James, consumer expert said: "Now that the Bank of England has finally cut interest rates a little, a few bolder lenders are breaking out from the pack and offering much more competitive rates to tempt potential mortgage holders.
"The 3.97% deal is a five year fix, which will be tempting for people who have suffered greatly under the highest interest rates in over a decade. "
He added: "But bear in mind that this rate – the best on the market at the moment – is still twice what rates were before inflation spiraled higher. So you could be stuck in a fixed deal for a long time if rates continue to plummet."
"So this offer is one for people who are naturally cautious and who can afford the monthly payments at this rate."
How to get the best deal on your mortgage
IF you're looking for a traditional type of mortgage, getting the best rates depends entirely on what's available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you're remortgaging and your loan-to-value ratio (LTV) has changed, you'll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home's value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you're nearing the end of a fixed deal soon it's worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal - but compare the costs first.
To find the best deal use a to see what's available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You'll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee - sometimes more than £1,000 - to the cost of the mortgage, but be aware that means you'll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you'll have to pass the lender's strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month's payslips, passports and bank statements.
What is going on with mortgage rates?
The Bank of England cut its base rate in August this year from 5.25% 5%.
Interest rates had been held at 5.25% for and remained a their highest level for 16 years before the drop.
This is important for buyers because high street banks and lenders use the BoE base rate to set their own interest rates on mortgages, loans and savings accounts.
So when it comes down, interest on mortgages rates and loans is likely to fall as well.
A number of lenders cut rates in response to news last week.
These include
- Barclays
- Santander
- Lylods Bank
- HSBC
- Halifax
- Coventry Building Society
- Clydesdale and Yorkshire Bank
Should you fix?
Nicholas Mendes, mortgage technical manager, at John Charcoal, weighs up if fixing is right for you
For those with a steady income and a long-term plan to stay in their property, a fixed-rate mortgage can provide security against rising rates.
However, individuals who might move within the next few years should carefully consider any early repayment charges associated with the fixed rate.
Utilising a mortgage broker can significantly enhance your decision-making process. Brokers possess extensive knowledge of the market and can find deals that best suit your needs. They save you time and effort by handling the paperwork and application process.
Additionally, brokers often have access to exclusive deals not available to the public and can provide personalised advice based on your financial situation and goals.
While rates appear to be coming down they still remain above what the market saw five years ago.
In 2019, the average five year fixed mortgage rate deal was 2.94%.
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Experts at CBRE expect the same deal to 3.82% this year.
Mortgage rates have risen over the past few years in response to issues such as high inflation.
Different types of mortgages
We break down all you need to know about mortgages and what categories they fall into.
A fixed rate mortgage provides an interest rate that remains the same for an agreed period such as two, five or even 10 years.
Your monthly repayments would remain the same for the whole deal period.
There are a few different types of variable mortgages and, as the name suggests, the rates can change.
A tracker mortgage sets your rate a certain percentage above or below an external benchmark.
This is usually the Bank of England base rate or a bank may have its figure.
If the base rate rises, so will your mortgage but if it drops then your monthly repayments will be reduced.
A standard variable rate (SVR) is a default rate offered by banks. You usually revert to this at the end of a fixed deal term, unless you get a new one.
SVRs are generally higher than other types of mortgage, so if you're on one then you're likely to be paying more than you need to.
Variable rate mortgages often don't have exit fees while a fixed rate could do.
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