Britain’s biggest building society has ramped up the mortgage price war after launching a record low sub 1 per cent five-year fixed rate deal.
While rates below 1 per cent are not unusual for two year deals, Nationwide is offering this rate to those with a 40 per cent deposit remortgaging or moving, fixed until 2026.
The 0.99 per cent rate on this five-year fixed rate deal is the lowest ever recorded for this type of home loan, according to Moneyfacts data.
However, there is a sting in the tail with a hefty £1,499 fee – although, this is soaked far more into the overall cost of the mortgage compared to a shorter term fix.
Record low: Nationwide has launched a five-year fix with a rate of just 0.99%
Mark Harris, chief executive of mortgage broker SPF Private Clients said: ‘Just when it looked as though mortgage rates couldn’t possibly go any lower, they have.’
‘While there has been a flurry of sub-1 per cent two-year fixes in recent weeks, this is the first five-year fix pegged at such a low rate.’
The deal, available to both home movers and those looking to remortgage (not first time buyers), comes with that large product fee, which can be either added to the mortgage or paid upfront.
This means that a typical borrower with a £200,000 repayment mortgage on a 25-year term will pay £758 per month, if they opted to add the fee to the mortgage.
The next best alternatives are HSBC’s 1.06 per cent rate with a £1,499 fee and Natwest’s 1.09 per cent rate with a £995 fee, according to Moneyfacts.
A £200,000 repayment mortgage on a 25-year term with HSBC’s cheapest deal would cost £765 per month were you also to add the fees to the mortgage – or £766 with Natwest.
The benefits of Nationwide’s superior interest rate will likely be felt even more by those requiring higher loan amounts.
Chris Sykes, associate director and mortgage consultant at Private Finance said: ‘This rate is almost unbelievably good for the right client with a sufficient loan amount to justify the fee.
‘It is always worth comparing costs of different loans as this may not be best on a £100,000 loan due to the £1,499 fee, but on a £500,000 loan it may be significantly better than the next best alternatives.’
To compare the overall cost, use the This is Money true cost mortgage calculator to compare deals on both rates AND fees.
Nationwide has relaunched a three-year fixed-rate mortgage range for any buyers looking for a fixed rate period in between the more common two year or five-year periods.
Those with either a 40 per cent deposit or equity can secure a rate of 0.94 per cent matching the equivalent rates on Nationwide’s two-year fixed mortgages.
The three-year fixed rate deals all come with a no fee and £999 fee option and will be available to first-time buyers, those remortgaging and home movers.
With Nationwide having stepped up the mortgage price war there is now some expectation that rates might yet faller further among other lenders.
‘Although we may have hit the bottom of where rates will go, usually where one lender goes others follow suit, so I wouldn’t be surprised if we see the likes of HSBC, Natwest and Santander following suit in the next couple of weeks,’ said Sykes.
‘It really does send a message in regards to the expectations of lenders into the long term, with inflationary risks they cannot be that worried that we will see high interest rates in the coming years or they would not be offering such rates.’
Is the mortgage market distorted?
Whilst rate drops have continued to grab the headlines, the gap between those that have large deposits and equity and those that don’t is still wide.
The average five-year fixed deal for those with 40 per cent deposits or equity is 1.81 per cent, according to Moneyfacts, whilst those with 10 per cent deposits or equity the average rate is 3.47 per cent.
Prior to the pandemic, in February 2020 there was just a 0.8 per cent difference on average between those with 60 and 90 per cent deposits or equity.
But there are positive signs that this gap might be beginning to narrow again, which could be good news for those with smaller deposits and less equity built up within their homes.
Chris Sykes adds: ‘The current gap is down to the economic environment that we are in currently in as banks feel they are taking a higher risk at the higher loan to values these days compared to the pre pandemic levels of risk.’
‘We have seen significant reductions in 90 per cent pricing over the last few months, when these products came back out during the pandemic they were typically 3.5-4 per cent, whereas now they are much more competitive.’
‘In fact I quoted a client a 2.99 per cent product as their best option around a month ago and today I’ve revised that to a 2.58 per cent product at 90 per cent loan to value.’
‘This is just down to rates coming down – their circumstances were exactly the same.’
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