Yorkshire Building Society launches 0.78% rate mortgage.
It will track the Bank of England’s base rate for two years, but the cost could go up if Bank moves interest rates.
Yorkshire building society this week launched a mortgage with a market-leading rate of 0.78% – but the cost could go up if the Bank of England moves interest rates.
The mortgage, available to borrowers with a deposit of 35% or more, will follow the Bank’s base rate for two years, 0.68% above the official rate until the end of October 2023.
The initial rate puts it ahead of other two-year deals, but unlike most other below 1% mortgage loans on the market, it is not fixed, so borrowers risk their repayments increase.
The Bank’s base rate has been at 0.1% since it fell to a record low when the coronavirus crisis first gripped the UK.
But while economists suggested several months ago that it could enter negative territory, the recent surge in inflation has led to forecasts that rate hikes could be on the horizon.
At its last meeting, the Bank voted to maintain interest rates but said that rising consumer prices had “strengthened [the] case” for a modest increase in the next few years.
Yorkshire also offers a tracker starting at 0.89% for borrowers with a 25% deposit.
“Yorkshire Building Society seeks to continue its overwhelming annual growth.”
The offers, which come with a £ 995 fee and a free standard valuation, are among a growing number of offers with rates below 1%, as lenders struggle to attract customers, particularly those with large deposits.
Ben Merritt, Senior Mortgage Manager at Yorkshire Construction Society, said: “In a genuinely competitive mortgage market, we are pleased to be able to offer our lowest mortgage rate to give borrowers more options.
“The recent increased availability of follow-up mortgages, including the introduction of our first follow-up mortgage over a few years, broadens the number of options available to borrowers who, in a low-rate environment, may want to take advantage of the lower monthly payments.”
However, Merritt added: “As with any variable mortgage that tracks the Bank’s base rate, it is important to ensure that any increase in monthly payments can be allowed, should the base rate increase.”
The agreements come with an early repayment fee in the first two years, equal to 1% of the cancelled loan. Eleanor Williams, the finance expert at Moneyfacts.co.uk, said the 0.78% mortgage was “a welcome addition to an already bustling industry” and showed that there was still an “interest rate war” between lenders.
Mark Harris, CEO of mortgage broker SPF Private Clients, said that if the base rate were to go up to just 0.25%, the mortgage would cost the same as the cheapest two-year fixed-rate offers on the market.
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