Mortgage price war escalates: Nationwide offers fixed rate contract below record 1% over five years

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Britain’s largest mortgage lender has escalated the mortgage price war after launching a five-year fixed rate contract, a record below 1%.

While rates below 1% are not unusual for two-year offers, Nationwide offers this rate to those with a remortgage or moving 40% deposit, fixed until 2026.

The 0.99% rate on this five-year fixed rate deal is the lowest ever for this type of mortgage, according to data from Moneyfacts.

However, there is a sting in the tail with a hefty fee of £ 1,499 – although this is absorbed much more into the overall cost of the mortgage compared to a shorter term solution.

All-time low: Nationwide launched five-year fix with rate of just 0.99%

Mark Harris, managing director of mortgage broker SPF Private Clients, said: “Just when it looked like mortgage rates couldn’t come down any further, they did.”

“While there has been a surge of fixes to less than 1% over two years in recent weeks, this is the first five-year fix at such a low rate.”

The deal, available to both movers and those looking to remortgage (not first-time buyers), comes with a significant product fee, which can be added to the mortgage or prepaid.

This means that a typical borrower with a 25-year £ 200,000 repayment mortgage will pay £ 758 per month if they choose to add the fees to the mortgage.

The next best alternatives are HSBC’s 1.06% rate with a fee of £ 1,499 and Natwest’s 1.09% rate with a fee of £ 995, according to Moneyfacts.

A 25-year £ 200,000 repayment mortgage with HSBC’s cheapest offer would cost £ 765 per month if you also added fees to the mortgage – or £ 766 with Natwest.

The benefits of Nationwide’s higher interest rate will likely be felt even more by those requiring higher loan amounts.

Chris Sykes, Managing Partner and Mortgage Consultant at Private Finance, said: “This rate is almost unbelievably good for the right client with enough loan amount to justify the charge.

“It is always worth comparing the costs of different loans, as this may not be the best on a £ 100,000 loan due to the £ 1,499 fee, but on a £ 500,000 loan, it may be significantly better than the following best alternatives. “

To compare the overall cost, use the This is Money True Cost Mortgage Calculator to compare offers on rates AND fees.

Nationwide has re-launched a line of three-year fixed rate mortgages for all buyers looking for a fixed rate period between the more common two or five year periods.

Those with either a 40 percent deposit or equity can get a rate of 0.94 percent corresponding to the equivalent rates on Nationwide two-year fixed mortgages.

The three-year fixed rate offers all come with a no-cost, £ 999 option and will be available to first-time buyers, remortgants and movers.

With Nationwide having escalated the mortgage price war, rates are now expected to fall even more among other lenders.

“While we may have hit the bottom of the rate movement, usually where one lender goes, others follow suit, so I wouldn’t be surprised if we saw HSBC, Natwest and Santander follow suit. the next two weeks, “said Sykes.

“This really sends a message about the expectations of long term lenders, with inflationary risks they cannot fear that we will see high interest rates in the years to come or that they will not offer such rates. . “

Is the mortgage market distorted?

While rate cuts have continued to grab the headlines, the gap between those with large deposits and capital and those without is still wide.

The average five-year fixed deal for those with 40 percent deposits or equity is 1.81 percent, according to Moneyfacts, while for those with 10 percent deposits or equity, the rate average is 3.47 percent.

Before the pandemic, in February 2020, there was on average only a 0.8% difference between those who held 60 and 90% deposits or equity.

But there are positive signs that this gap could start to narrow again, which could be good news for those with smaller deposits and less equity in their homes.

Chris Sykes adds: “The current gap is due to the economic environment we find ourselves in now as banks feel they are taking a higher risk due to the higher lending these days compared to the risk levels. before the pandemic. “

“We have seen significant price reductions of 90% in the last few months, when these products came back during the pandemic, they were typically 3.5 to 4%, while they are now much more competitive.”

“I actually cited a customer for a 2.99 percent product as his best option about a month ago and today I revised that to a 2.58 percent product at 90 percent of the loan value. “

“It’s just due to the drop in rates – their circumstances were exactly the same.”

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