TSB has opened a new front in the mortgage price war, launching a 10-year fixed-rate mortgage aimed at customers who have only 5% of the purchase price to put down as a deposit.
The lender said borrowers would be able to lock in to a rate of 5.69% until 2025 at a loan to value of up to 95% of their property’s price. It is the only 10-year fix at that level.
Most of the battles between lenders have focused on price, with banks and building societies revising rates down on a regular basis. In the past seven days, several lenders including Barclays and Nationwide have cut mortgage rates, and figures from the Bank of England show it has never been cheaper to take out a new loan.
TSB’s fee-free deal lacks a headline-grabbing interest rate but is likely to be welcomed by first-time buyers looking for long-term security with the option of moving on. As well as being the longest-term fix available to borrowers with a small deposit, thedeal is part of TSB’s Fix and Flex range, meaning borrowers are allowed to pay off their loan without penalty after five years.
David Hollingworth, of the mortgage brokers London & Country, said the launch “shows how lenders are trying to appeal to niche groups in order to compete because competition is so strong”. He said lenders were leapfrogging each other at the top of the best-buy tables in an attempt to build their market share.
In recent days, 10-year fixed-rate deals have had some of the biggest reductions. First Direct cut its rate by 0.6 percentage points on Friday to 2.89% for current account holders, and Nationwide is offering the same rate to existing mortgage customers looking to switch deals. These loans demand deposits of 35% and 30% respectively and have arrangement fees of almost £1,000.
Figures from the Bank of England offering a snapshot of the average rates on offer show that after rising slightly in the middle of last year the cost of two- and five-year fixed-rate loans has fallen since the autumn. In January borrowers with a 25% deposit were typically being offered loans around 0.2 percentage points cheaper than last October, while those with a 5% deposit have seen bigger falls – the cost of a five-year fixed-rate deal at 95% fell by half a percentage point.
Over the past year, the average cost of a two-year variable rate deal – one that is linked to the Bank of England base rate or the lender’s standard variable rate (SVR) – has dropped from 2.82% to 1.64%.
Borrowers with bigger deposits are being offered even better deals than those recorded by the Bank’s figures. HSBC has a discount mortgage with a starting rate of 0.99% for borrowers who have a 40% deposit, or that much equity in a house that they are remortgaging, and a two-year deal at 1.19%.
However, even those with small deposits are seeing rates fall. “Across the board rates are low,” said Andrew Montlake, of the mortgage brokers Coreco. “Whether you have a 40% deposit or 10%, the lenders are just battling it out for business.”
Montlake said rates were the best in a generation. “Two-year fixed rates are heading towards 1%, while five-year rates are heading towards 2% – it’s just extraordinary.”
Last week the Council of Mortgage Lenders suggested rates could remain low for some time to come. It said banks and building societies were benefiting from inflows of cash from savers, which they could lend cheaply, plus the availability of cheap money on the wholesale funding market.
“Obviously, there may be some bumps in the road, and market volatility could affect funding rates,” it said. “However, if these bumps can be successfully negotiated, the outlook will be for low mortgage rates to continue.”
Brokers said lenders were still applying strict criteria to would-be borrowers, and some were tightening their rules, with Santander announcing it would no longer lend more than 4.49 times salary to first-time buyers.
However, Hollingworth said borrowers should not be deterred. “Lenders do want to lend, so it is worth a go,” he said. “They don’t want to attract you in to say no.”
