Cynical marketing ploy or a genuine great rate for its customers? The new ultra-low mortgage rate from Yorkshire Building Society (YBS) seems, on the face of it, great news for home buyers. And it’s the latest in the building society’s ongoing battle with HSBC.
Last June, HSBC launched a record 0.99% two-year fixed rate mortgage and YBS immediately fired back by offering one at 0.98%. Lenders relaxed a little when the rates generally edged above 1% but now YBS’s latest offering is likely to put the cat among the pigeons and the market can expect to see others following suit with rock bottom rates.
James Farrow, senior mortgage manager at YBS, said: “We are very pleased to offer borrowers the lowest mortgage rate ever available. The cost of funding has fallen in recent weeks and as a financially strong building society with no external shareholders to satisfy we have the ability to pass this on to borrowers.”
The latest low-cost mortgage is a two-year variable mortgage with a discount of 3.85% off of YBS’s standard variable rate (SVR) which is currently 4.74%.
However, a look at the detail reveals a slightly different picture. The new mortgage works well for those who are happy to take the risk of a short-term cheap rate deal over long-term security with a fixed mortgage but after two years, customers will have to go onto the SVR or look to remortgage.
Customers will also need a hefty deposit as well because they can only borrow up to 65% of the value of the property. As well as having an impeccable credit rating to qualify, it is unlikely to help out hard-pressed first-time buyers who generally need to borrow much more than 65% to get on the property ladder.
In addition, there are predictions interest rates could rise once the general election is out of the way in June although, according to Money to the Masses, Bank of England interest rates are not expected to rise above 0.5% before 2019.
If they do however, it means borrowers who opt for YBS’s offer could start paying a higher rate than 0.89% in less than two years. In addition, there is an up front fee of £1,495 to pay and a standard valuation fee of £450.
For example, based on an assumed completion date of August 31, a mortgage of £349,000 payable over 26 years initially on 0.89% variable until August 31, 2019 would mean 24 monthly repayments of £1,253.02.
The remaining 24 years would be on the SVR, currently 4.75%, and repayments would be £1,889.13.
Rachel Springall, financial expert at MoneyFacts, added: “It’s fantastic to see such low rates on offer and the choice between variable or fixed deal will appeal to different types of borrowers.
“Those looking for more flexibility over the shorter term may prefer a discounted deal, but those looking for more security could choose the fixed rate.”