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06 Feb 2019

Mortgage rates drop: how to get the cheapest deal when buying or remortgaging

Fixed-rate and tracker mortgages fall in cost during January

Stephen Maunder

Lenders cut the cost of their fixed-rate and tracker mortgages in January, but is this a flash in the pan or a sign that cheaper mortgage deals are returning?

After a year of price rises, mortgages are dropping in cost again, with a host of banks amending their rates last month.

Here, we explain the latest market trends and offer advice on finding the right mortgage, whether you're buying a home or switching your deal.

Fixes and trackers fall in price

Last year, fixed-rate and tracker mortgages became more expensive at almost all loan-to-value (LTV) ratios, as lenders faced higher funding costs and passed on rises in the Bank of England base rate.

In February 2019, however, the average price of mortgages dropped slightly, as shown in the chart below, offering some welcome good news for homebuyers and remortgagers.

Mortgage rates year-on-year

Despite these price reductions, there's still some distance to go before we see the kind of record-low rates that were on offer a year ago, before the base rate increased to 0.75%.

Five-year fixed-rate deals are leading the charge, however, with greater competition resulting in average rates being just 0.06% higher than last February.

Type of mortgage	February 2018	February 2019	Percentage change
Two-year fixed	2.35%	2.49%	+0.14%
Three-year fixed	2.56%	2.66%	+0.10%
Five-year fixed	2.84%	2.90%	+0.06%
Two-year tracker	1.98%	2.10%	+0.12%

Why are rates falling?

A drop in mortgage rates is a good thing for consumers, but will prices continue to tumble throughout the year? In truth, this depends on a range of factors.

January's rate drop was likely influenced by each of the following things:

January sales: January is a time of flux for the mortgage market, and this year a host of lenders launched new products and amended their existing ones.
Swap rate drops:Swap rates determine the cost of borrowing for banks - so an increase in Swap rates means higher costs for both lenders and consumers. In January, Swap rates fell across the board, and so too did the cost of mortgages.
Increased competition:More competition can result in cheaper deals, and the number of mortgages on the market is increasing all the time. At time of writing, there are 6,822 mortgages in the market, compared to 5,880 in February last year.
Base rate changes:Tracker mortgages are directly influenced by the Bank of England base rate, and after two rate rises in the last 15 months, it's possible that rates are now settling down.

Cheapest mortgage rates

The tables below show the lowest introductory rates currently available on fixed-rate and tracker mortgages, at four popular LTV ratios.

While these tables offer an example of the rate you might be able to get, be aware that some mortgages have certain criteria you must fulfil - such as minimum or maximum loan amounts.

Two-year fixed-rate mortgages

Loan-to-value	Lender	Initial rate	Revert rate	APRC	Fees
60%	Leeds	1.39%	5.69%	4.8%	£1,999
75%	Atom Bank	1.44%	4%	3.6%	£1,200
90%	Atom Bank	1.79%	4%	3.5%	£1,200
95%	Halifax*	2.67%	4.24%	4.2%	£1,495

_{Source:Moneyfacts. 5 February 2019. *Halifax deal not available to first-time buyers. Lowest introductory rate for first-time buyers is 2.79% from Loughborough - 2.79%/5.34%/5.1%/£999.}

Five-year fixed-rate mortgages

Loan-to-value	Lender	Initial rate	Revert rate	APRC	Fees
60%	Halifax	1.79% (first-time buyers), 1.80% (home movers)	4.24%	4.2%	£1,495
75%	Halifax*	1.89%	4.24%	4.2%	£1,495
90%	Atom Bank	2.24%	4%	3.4%	£1,200
95%	Monmouthshire	3.19%	5.24%	4.6%	None

_{Source:Moneyfacts. 5 February 2019. *Halifax deal only available to first-time buyers. Lowest introductory rate for home-movers is from Atom Bank - 1.94%/4%/3.7%/£1,200.}

Two-year tracker mortgages

Loan-to-value	Lender	Initial rate	Revert rate	APRC	Fees
60%	Halifax	1.34% (base rate +0.59%)	4.24%	3.9%	£999
75%	Leeds	1.38% (base rate +0.63%)	4.69%	4.8%	£999
90%	Accord Mortgages	1.99% (base rate+1.24%)	4.25%	4.4%	£995
95%	Skipton	2.99% (base rate+2.24)	4.99%	4.8%	£495

How to compare mortgage deals

Choosing a mortgage isn't as simple as getting the best introductory rate you possibly can, as headline-grabbing rates don't always tell the full story.

Follow these tips when comparing mortgages:

Take note of up-front fees.Some lenders will offer the same mortgage deal with different structures. For example, you might be able to get a rate of 1.5% but with a fee of £1,500, or alternatively get a rate of 1.8% but pay no up-front fee at all. With this in mind, always consider up-front costs when comparing deals.
Watch out for 'collars'.Tracker deals can be popular when the Bank of England base rate is low (currently 0.75%), but many products don't pass on the benefit should the rate fall further. For example, the Skipton tracker above is 'collared' at its introductory rate of 2.99%, meaning that even if the base rate drops by 0.25% you'll still need to pay the same amount, but if it rises you'll have to pay more. The Accord deal above, meanwhile, is priced at 1.99% but collared at 1.74%, meaning that you'd enjoy the benefit of base rate drop of up to 0.25%.
Consider your appetite for risk.The base rate has increased twice recently, but that doesn't mean it won't rise again this year. And while trackers are attractively priced, the cheapest deals would struggle to compete once a 0.25% base rate rise is factored in.