A new two year fixed rate mortgage from the Co-Operative Bank offers only 1.09% interest and borrowers must pay a high £1,500 fee.
The Co-Operative Bank has launched a new two-year fixed rate mortgage of 1.09% available for first time buyers, home movers and remortgage buyers with a 40% deposit.
Borrowers would have to pay a hefty arrangement fee of £1,499 significantly higher than the average of £920 for a two-year fixed rate.
Just last month HSBC offered a record 1.99% five year fixed rate mortgage for 60% loan to value (LTV) the first of its kind under the 2.0% mark but £1,499 arrangement fee.
Fixed rate mortgages could go lower
The two year fixed rate from the Co-Operative Bank beats the previous best from the Yorkshire Building Society offering 1.18%, requiring a deposit of 35% with a £1,499 arrangement fee.
With fierce competition continuing between lenders it is possible rates will continue to fall even below 1.0%.
For remortgage buyers at the end of your introductory offer, you can avoid the lenders expensive variable rate and switch to a new mortgage deal to reduce your monthly repayment costs.
These low rates are only available to people with large 40% deposits and people with smaller deposits pay much more although this may be changing.
For longer term mortgages Barclays have introduced a 2.99% ten-year fixed rate with £999 arrangement fee requiring on a 20% deposit.
This deal improves on the previous sub 3.0% ten-year fixed rate offering from Nationwide that required a 35% deposit and First Direct offering with a 40% deposit.
Even buy-to-let mortgages are benefiting from the fall in fixed rate mortgages.
For older equity release mortgage buyers, fixed rates can typically be secure from interest rates of 5.4% upwards without any evidence of earnings which is important for borrowers with only pension income.
High fees can reduce the benefit of rates
The fees you pay could make a difference to the overall cost of the mortgage and the lowest rate may not be the cheapest, it depends on what you borrow and the term.
A person with a mortgage of £200,000 could take the Co-Operative Bank fixed rate at 1.09% with £1,499 fee and this would cost the same as a mortgage with a rate of 1.33% and £500 arrangement fee over two-years.
As the mortgage amount increases the negative effect of higher fees reduced. Also, if the term is longer this will mean higher fees have less of an impact on the mortgage cost per month.
Arrangement fees can be added to the loan to avoid using your cash savings. You would then pay more interest as the mortgage would be slightly larger.
Whichever mortgage selected, first time buyers, home movers and remortgage buyers have to meet tougher affordability rules and lenders must take into account your income and expenses such as any loan commitments or childcare costs.
What are your next steps?
Talk to our London City Mortgage brokers for advice if you remortgage your existing home and want the best mortgage deal or release capital, buying your first home, moving home or are a buy-to-let investor.
Learn more by using the equity release calculator, mortgage cost calculators, and property value tracker chart. Start with a free mortgage quote or call us and we can take your details.
For older homeowners releasing equity from your property, our LCM mortgage advisers can recommend the lifetime mortgage, accessing wealth to pay for care at home or even gift to a family member or friend.
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