Homeowners can get a fixed-rate mortgage with a rate of below 1% for the first time since 2017, but do the numbers really add up?
TSB has launched a new two-year deal with an initial rate of just 0.99%, but its high up-front fee means borrowers may be able to save money by looking elsewhere.
Here, Which? explains how TSB's deal works and offers advice on what to look out for when remortgaging.
People buying a home will need to pay a slightly higher rate of 1.09%, with a fee of £995.
TSB's new deal is the first time we've seen a fixed-rate mortgage with a rate of below 1% since 2017, when HSBC offered a 0.99% deal.
Sub-1% mortgages do appear from time-to-time, but they're almost always variable rate deals.
TSB's deal is significant is it allows borrowers to lock in the 0.99% rate for two years, regardless of what happens in the mortgage market or wider economy.
To qualify for TSB's deal, you'll need to be remortgaging and be borrowing at a maximum of 60% of the value of your property.
The 0.99% rate is slightly cheaper than competitors such as NatWest (1.03%), Halifax (1.08%) and Santander (1.1%).
With rates so similar, it can be difficult to compare deals. This means it's important to focus on other aspects such as up-front fees.
TSB's deal comes with a high up-front fee of £1,495, as does Halifax's. Santander's deal has a fee of £999.
One of the best ways to compare mortgages is to look at the overall amount you'll pay during the fixed term - in this case, two years.
We've analysed how much the cheapest two-year fix available at 60% LTV would cost over two years, depending on whether you pay an up-front fee of £1,495, £999 or zero. The below calculations below are based on borrowing £200,000 over a 25-year term.
|Up-front fee||Cheapest rate||Lender||Monthly repayment||Total repayment over two years (inc. fee)|
Source: Moneyfacts, 19 May 2021.
TSB's deal offers a headline-grabbing initial rate and slightly lower monthly repayments, but once the fee is factored in, you'll actually end up spending more over the two-year period than if you took a deal with a higher rate but a lower up-front fee.
When you take out a mortgage, the rate you'll pay will usually be fixed for a set period of time - most commonly two or five years.
If you fail to switch deals at the end of this term, you'll be moved on to your lender's standard variable rate (SVR), which will usually be significantly higher.
According to Moneyfacts, the average two-year fix is currently priced at 2.57%, while the average SVR is 4.41%.
This means you could pay hundreds or even thousands of pounds a year extra if you fail to switch at the end of your fixed period.
The Covid-19 outbreak saw the number of mortgage deals on the market fall dramatically, but the worst now appears to be over.
Rates are currently very attractive, especially if you're borrowing at a lower LTV level.
It's currently possible to get a two-year fix at up to 80% LTV with a rate of below 2%. Rates at 90% and 95% LTV are significantly higher.
Low mortgage rates have resulted in some homeowners choosing to borrow extra when switching, in an attempt to fund home improvements or renovations.
Switching a mortgage needn't be a complicated process, but there are some steps you can take to get ahead of the game and ensure you get a good deal.