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Cost of home borrowing in the UK hits new lows

Borrowers in the UK are set to see the lowest every mortgage rates being introduced in the coming weeks as lenders battle to meet their targets.

It all started when Atom Bank introduced a 1.29% fixed five year mortgage at the beginning of April but that has now no longer available due to its popularity.

A few days ago the Yorkshire Building Society launched the lowest mortgage rate ever available in the UK at 0.89% and Santander, the third largest lender in the UK, is expected to announce low rates this week.

But experts warn that borrowers need to look carefully at the deals before going for them but they also believe that lenders are so desperate for new business that deals could fall as low as 0.5% in the coming weeks.

Financial information specialists Moneyfacts pointed out that while Yorkshire’s deal is currently the lowest new mortgage rate since records began in 1988, it is not a fixed rate and only available to those with a larger deposit and it comes with a hefty arrangement fee.

But it is a sign of the times. Indeed, Moneyfacts also pointed out that the average home borrower is now paying £276 a year less than a year ago and it is obvious that the trend is for ever lower deals.

‘Lenders are fighting fiercely to get more customers on to their books and that’s why they are offering these ludicrously low mortgages at the moment,’ said Martin Stewart, of mortgage brokers London Money.

‘Nearly all of them are behind on their lending targets and so they think they will attract more borrowers by slashing their rates. This is going to continue for the foreseeable future,’ he added.

Yorkshire’s two year discounted standard variable rate (SVR) mortgage is available for anyone seeking to borrow up to 65% of the value of their property and the building society is also continuing to offer the joint lowest ever, and lowest currently available, fixed rate mortgage at 0.99% for loans up to a maximum of 60% LTV.

According to James Farrow, senior mortgage manager at the Yorkshire Building Society the new 0.89% mortgage forms part of a wide ranging refresh of its residential lending, which also includes interest rate reductions of up to 0.16% on selected 65%, 75% and 85% LTV mortgages.

The new 0.89% product matches the Yorkshire’s SVR at a discounted level of 3.85% for two years before reverting to the SVR itself, which is currently 4.74%. The rate is collared at 0% so if the Yorkshire’s SVR reduced in the two years the variable rate would reduce too – but it would also increase if the SVR rose. It has a product fee of £1,495 and an alternative £995 fee option is available at 1.05%.

The Yorkshire pointed out that all remortgage only products now include a cashback option, in addition to a free standard property valuation and free legal service. The range includes mortgages with fees and no fees payable to help meet the needs of a wide range of customers.

‘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,’ Farrow added.

According to Rachel Springall, finance expert at Moneyfacts, borrowers are now seeing more choice at lower and lower rates. ‘It’s fantastic to see such low rates on offer. Those looking for more flexibility over the shorter term may prefer a discounted deal, but those looking for some security could choose a fixed rate,’ she explained.

‘In such a low interest rate environment it would be ideal for borrowers to consider overpaying their mortgage. As with any option borrowers would be wise to weigh up the entire package before entering any arrangement,’ she added.