60 second guide to cheap mortgage deals Get the right mortgage deal for you
02 August 2012
A mortgage price war has broken out on the high street with lenders slashing interest rates to as low as 2.89% driven by a new government-backed lending scheme.
We look at how you can get the best value mortgage and whether these deals are as good as they appear.
What is the Funding for Lending scheme?
The scheme allows banks and building societies to borrow money from the Bank of England (BoE) for up to four years at below market rates. The aim of the initiative is to encourage banks to issue more loans to UK households and businesses including through mortgage lending. The more they lend the more low cost credit they can borrow from the BoE and the lower the rate of interest they are charged.
Is it making a difference to the mortgage market?
Following the launch of the scheme a number of high street lenders have slashed interest rates on many of their mortgage deals. Some of these deals are the lowest five year fixed-rate deals ever offered in the UK.
Will it make mortgages cheaper for everyone?
The most competitive deals launched within the past couple of weeks are aimed at low-risk borrowers with large deposits. A number of banks have launched low interest fixed rate mortgage deals including Santander at 2.99% for five years, HSBC at 2.99% for five years, Natwest at 2.95% for five years and Nationwide at 2.89% for four years. However these deals are only available to people who can stump up a 40% deposit.
What about first time buyers or people with smaller deposits?
Most of these deals are only available to people with significant deposits or who own over 60% of their home. There is evidence that the market is shifting slightly though, with Royal Bank of Scotland cutting its five-year fixed-rate to 4.79% for those with a 10% deposit and First Direct reducing its two-year fixed-rate mortgage for buyers with a 10% deposit to 4.29%.
And as the Funding for Lending scheme gets into full swing we may see more attractive deals launched for those with smaller deposits.
Are these low interest deals good value?
Many of these deals come with high arrangement fees which can add thousands of pounds on to the cost of the mortgage. Arrangement fees have been steadily increasing in cost over the past few years so it’s really important to take them into account when calculating the cost of the mortgage.
On some occasions it may be that a higher interest loan will cost less than one with a lower interest rate because of lower arrangement fees.
How do I find the best deal for me?
There is a wide variety of mortgage deals available across the market with different interest rates, levels of flexibility, repayment terms and fees and charges so it’s really important to shop around.
We believe you should take independent advice before choosing a mortgage. The Which? Group offers an independent mortgage advice service that looks at every mortgage from every available lender. You can also find an independent mortgage adviser using the Unbiased website.
If you're looking to find out what your repayments would be at different interest rates, or want to get an idea of how much you could borrow, try the mortgage calculators offered by Which? Mortgage Advisers.