The 1% Mortgage is Back, but what does it Really Mean?
Competition among lenders on the High Street is fuelling an unprecedented and escalating price war; over the course of the last month several lenders have once again introduced sub-1% two-year fixed mortgage deals for the first time in years.
Today there are at least 10 two-year fixed remortgage deals being advertised at rates of less than 1%, all of which is prompting many to ask the obvious question:
Are 1% mortgage rates for real, or is it all too good to be true?
Why Lenders Are Offering Sub-1% Mortgage Deals
The motivation for offering mortgages with interest rates lower than 1% is fairly straightforward. As things stand right now, lenders are finding themselves with little choice but to go to extremes to get new customers on their books.
Competition between lenders is ferocious, meaning many are throwing out the kinds of deals they would never have considered in previous years.
“The sub-1% mortgages to surface have grabbed the spotlight as lenders drop their rates to bring in new business after the market endured an unsettled period due to the pandemic,” explains Rachel Springall, finance expert at Moneyfacts.co.uk.
“Genuinely a deal with a low rate and high fee may only be suitable for someone with a substantial mortgage and who can meet the eligibility criteria. If borrowers were to approach a mortgage broker and assess the deal based on true cost, they may well find they are better off elsewhere on a deal with a slightly higher rate but with a more reasonable fee and incentive package. It really does depend on their circumstances and what they are looking to borrow, so seeking advice is wise,”
“There is much more scope for lenders to cut pricing in the higher loan-to-value sectors but we have only recently seen product choice grow in this area of the market, after a significant drop due to the pandemic,”
“With this in mind, it may be a few weeks yet before lenders consider slashing their rates on higher loan-to-value mortgages and instead they may well just maintain their presence in the market or make minor tweaks for borrowers who have been waiting for deals to return.”
A Competitive Offer with caveats
The appeal of a sub-1% mortgage deal is undeniable, but it is unlikely most prospective buyers will be able to qualify for such rates. With the vast majority of lenders offering sub-1% deals – including NatWest, Royal Bank of Scotland, TSB and Platform, the maximum LTV available is just 60%.
In order to qualify, the applicant would subsequently need to provide a minimum deposit of 40% along with all other initial charges. The offer is therefore unlikely to appeal to most first-time buyers, for whom saving the minimum deposit requirement is often the biggest of all barriers to home ownership.
In the meantime, movers and first-time buyers looking to get the best possible deal are advised to consult with an independent broker, rather than approaching any specific lender directly. Some of the most competitive deals on the market are available exclusively in the form of broker-introduced applications, and are not available on the High Street.