The Yorkshire Building Society has launched a 0.89% mortgage rate, the lowest on record in the UK – but how does this deal measure up against the market?
The record-setting offer is based on a 3.85% discount for two years on the Yorkshire BS standard variable rate (SVR). Customers who sign up at the discounted rate will be moved on to the SVR, which is currently 4.74%, on 31 August 2019.
The maximum loan-to value ratio is 65%, meaning buyers will need a substantial deposit. An arrangement fee of £1,495 is also payable and the APR is 4.2%.
Below, Which? evaluates how this deal compares to the rest of the market.
- For impartial advice on finding the best mortgage deal for your needs, contact our experts at Which? Mortgage Advisers on 0208 252 7987.
How does this mortgage deal compare?
This mortgage offer is set at an unprecedented rate, the lowest since Moneyfacts started recording in 1988.
However, the discount is pegged to the building society’s SVR, so that customers may find their rates suddenly rising if Yorkshire BS decides on an SVR increase. If you would prefer protection from unexpected rate hikes, you may need to search for fixed-rate mortgages instead.
Once arrangement fees are added to the equation, there are likely to be products that will cost less over the first two years.
The table below shows how a selection of other mortgages compare based on the total cost over the initial deal period. The table assumes borrowing of £125,000.
|Lender||Product type||Arrangement fee||Initial rate||Reverts to||APR||Total cost over two years|
|West Brom BS||Discounted Variable||£0||1.59%||3.99%||3.6%||£12,660.32|
|Leek United BS||Discounted Variable||£199||1.35%||5.19%||4.6%||£12,693.44|
|Yorkshire BS||Discounted Variable||£1,495||0.89%||4.74%||4.2%||£13,353.76|
Find out more: finding the best mortgage deals – see our video guide
Is a discount mortgage right for you?
Rates on discount mortgages are guaranteed to remain below the lender’s SVR for the initial deal period.
During times when the Bank of England base rate are low, lenders also tend to keep their SVRs down, meaning you’re likely to pay a smaller rate of interest.
However, a lender can alter its SVR at any time. Customers who want to take advantage of a discount have to be comfortable with the possibility of their mortgage repayments rising at short notice.
Which? Mortgage Advisers Principal Adviser David Blake said: ‘It’s great news for existing and potential borrowers that lenders are offering historically low rates. Increased competition in the market provides people with greater choice.
‘That said, it’s important people don’t chose a mortgage purely based on the rate of interest alone. The total cost of the mortgage should be taken into account, including fees. Also, it’s vitally important people understand how a mortgage product works before committing to it.’
In addition, those hoping to snap up market-leading mortgage rates may need to act fast, as many of these deals are pulled from the market shortly after being announced. Last week, Atom Bank pulled its market-leading five-year fixed-rate mortgage deal just nine days after launch.
Find out more: discount mortgages – discover the pros and cons of this mortgage type
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