Rock bottom mortgage rates mean that borrowers can now choose from a wide range of two-year fixed rate mortgages at less than 1%, or five-year fixed rate mortgages at just over 1%. Recent weeks have seen the launch of several headline-grabbing two-year fixed rate deals below 1%, but the gap between five and two-year fixes has been narrowing and it is now possible to find some five-year deals that are cheaper than shorter-term fixes. According to financial information company Defaqto, five-year fixed rates have not been this low for at least 12 years. Katie Brain, consumer banking expert at Defaqto, said: “We haven’t seen rates this low for a very long time and it is great news for anyone looking to re-mortgage. While the Bank of England kept interest rates low throughout the pandemic, we have not seen this passed on to borrowers like this until now. It has been a turbulent year for borrowers needing a mortgage and it is encouraging to see these new products being offered at such great rates.” Shorter term deals will typically offer the lowest rates but as the margins have narrowed in recent years it has resulted in more borrowers considering the benefit of longer term security. Five year fixed rates have become more popular and it’s even possible to lock your mortgage rate down for 10 years or more, although it’s important to consider any Early Repayment Charges that could apply.
The more equity you have, the better the rates
The very best rates are available to those with at least 40% or 50% equity in their homes if remortgaging, or the equivalent size deposit if buying a property. However, rates have also improved for those looking for higher loan-to-value mortgages – although you will still pay more – with a growing number of options available, even if you only have a 5% deposit to put down. If you’re tempted by one of the ultra-competitive mortgage deals on offer, bear in mind that many of these come with hefty arrangement fees, which can add substantially to the overall cost of your mortgage. It’s therefore vital to crunch your numbers carefully and look at the total cost involved – or ask a broker to do this on your behalf – before deciding which option is best for you.