Mortgage rate alert: a two-year fix for 2.85pc

Published 23rd Aug 2010

Lenders are making record profit margins, but there are competitive deals around.


Home owners continue to benefit from historically low interest rates, with the Bank Rate still 0.5pc. However, if inflation exceeds the Government's target of 2pc, this could put pressure on the Bank of England to edge interest rates up again.

Even though the latest Consumer Price Index stands at 3.1pc, according to figures released this week, Mervyn King, the Governor of the Bank of England, has given a strong indication that he would like to see the interest rates remain low for a while.

This decision does not rest in his hands alone – a committee will vote on future rate rises, so there is no guarantee that the Bank Rate will remain at its current level. These uncertainties mean there is much to think about for those looking to negotiate a mortgage deal.

Home owners have two options. Firstly, a variable rate mortgage, where the borrower takes advantage of low rates linked to Bank Rate. They may have the option to redeem to a fixed-rate deal if interest rates suddenly start to rise. However, there is a danger that the rates on fixed-rate deals may be a lot more expensive at this point. In fact, as expectations grow of a rate rise, fixed-rate deals will get more expensive, due to a rise in funding costs that the banks need to cover.

The second route is for a borrower to take on a fixed-rate deal from the start and set their monthly repayments in stone for the length of the initial rate period. Current interest rates on fixed-rate deals may be a little higher than variable counterparts, but borrowers have peace of mind knowing that irrespective of what is decided by the Monitory Policy Committee each month, it will not affect their monthly repayments.
Hanley Economics offers discount

Hanley Economic Building Society this week launched a discounted mortgage. Borrowers with a 20pc deposit are being offered 3.85pc until November 30 2012, a rate 0.49 of a point lower than the previous market leader. A £899 arrangement fee is payable. The mortgage offers house purchasers a £250 rebate, while remortgagers will benefit from free legal fees.


ING cuts fixed-rate mortgage costs

This week ING Direct has reduced the rates on its two-year, fixed-rate mortgage to 2.79pc until November 30 2012. The deal is available to borrowers with a 40pc deposit and is subject to £945 arrangement fee.

The rate is one of the lowest on the market, with those below it charging high percentage fees. Although no incentives are offered with the deal, the mortgage will appeal to borrowers looking for a low-rate/fee combination.


Yorkshire tries a little variety

Yorkshire Building Society continues to offer a range of competitive mortgage deals.

Borrowers with a 15pc deposit are being offered a range of options including a market-leading three-year fixed-rate deal at 4.59pc, subject to a £495 fee or a two-year fix at 3.99pc, which is subject to a £995 fee. Alternatively, the society is offering a competitive tracker charging 2.99 points above Bank Rate, currently 3.49pc.

Chris Smith, the senior product manager for mortgages, said: "Our new range of mortgages for people with a 15pc deposit offers great value and a variety of options to suit borrowers' pockets."


HSBC extends tracker deal

Following exceptional demand levels, HSBC has moved to extend the period its market-leading tracker is available. Borrowers have until September 5 to take advantage of the lifetime tracker deal, which currently charges 2.19pc (1.69 percentage points above Bank Rate). The deal is available to borrowers with a 40pc deposit and subject to a £99 booking fee.

Martijn van der Heijden, HSBC's head of mortgages, said: "This low-rate, low-fee tracker mortgage has captured the interest of a huge number of customers. We have extended the offer to enable as many customers as possible to get it.

"The low costs together with no tie-ins has proved a real winner, borrowers can take advantage of the low rate now and once Bank Rate starts to rise, switch into a fixed rate with no exit or redemption charges."


Post Office offers two-year best buy

The Post Office has moved to cut rates by as much as 0.8 percentage points across the board. The lender now offers a range of competitive deals including it new best buy two-year fixed mortgage, which charges just 2.85pc. The deal is available to borrowers with a 35pc deposit and is subject to a £1,495 fee.

Marco Hughes, the director of personal lending at the Post Office, said: "Through these latest reductions, customers can benefit from our lowest fixed rate ever, at just 2.85pc for two years."

Source: ' Telegraph '

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