12:01 25 February 2013
It might seem as though mortgage rates can't have much further to tumble, but now First Direct has stormed the market with the lowest EVER five-year fixed rate mortgage on record!
The deal promises to freeze your repayments at a record-cheap rate of 2.69% for the next half- decade. But is this the deal for you? And if so, how do you get a slice of the action?
Here we take a closer look at First Direct's new offering - and compare it with some recently-launched shorter-term fixes that are also breaking records as the 'cheapest in history'.
What's the deal?
First Direct has launched a five-year fixed rate mortgage priced at 2.69%. This is not only the cheapest deal of its kind the lender has ever offered, but it's the cheapest on record.
You will need to put down a 35% deposit to qualify and stump up a booking fee of £1,999.
As is standard practice with fixed rate mortgages, you will be tied in for the duration of the deal. Early repayment charges (ERCs) are calculated at 3% of the original loan during the first year, and 2% during any subsequent years within the five-year period.
In spite of the rock-bottom interest rate, if you are unsure of your plans for the next five years, this may not be the best deal for you because of the ERCs.
If you think you'll require a degree of flexibility over the next five years, this may not be the best deal for you in spite of the rock-bottom rate. This is because you will be tied in for the duration of the deal, as is standard practice with fixed rate mortgages.
However, Andy Forbes, head of retail products at First Direct, said: "Over the last month we have seen borrower appetites increase for longer-term fixed rate mortgage deals. In response to this demand we have reviewed our offers available."
Nevertheless, even though it can be added to the loan, the £1,999 fee is still pretty hefty. Especially if your borrowing requirements are low, it may be worth taking a higher rate and paying less in fees. For example, the cheapest 'fees-free' deal available is from Virgin and priced at 2.89% until April 2015 if you have a 40% deposit.
See this and other deals available on MoneySupermarket's mortgage channel and, as always, do your sums. There's more on how to do this below.
What's the verdict?
For such a cheap rate, the five-year term of First Direct's five-year 2.69% deal is likely to be a positive, rather than a negative. And the mortgage also only requires a 35% deposit, not 40% as is typical of almost all the best deals.
The fat £1,999 fee is not as horrendous as it first appears when taken in a five-year context. Fees can be just as high for two-year fixed rate mortgages which, of course, would have to be paid two or even three times in the same five-year period.
If the lengthy tie-ins are still niggling you, the good news is there's some two-year fixed rates that have launched alongside First Direct's deal which also boast the cheapest rates in history.
Chelsea Building Society for example, has launched a two-year fix at just 1.89% for a 40% deposit though the fee is still predictably high at £1,695.
Yorkshire Building Society (which owns the Chelsea) has also launched a fixed rate deal priced at 1.94% until March 31, 2015. The fee here is £1,495.
Both deals knock HSBC's 1.98% two-year fixed off the top spot, where it only sat for a matter of days since launching. This deal also comes with a £1,999 arrangement fee - unless you are a current account customer when it drops to £1,499.
Also new to the market is Norwich & Peterborough's two-year fix which is priced at a fractionally higher rate than all of these deals at 1.99%. But, because of the lower fee of £995, this is actually the cheapest deal over two years for anyone looking to borrow up to £250,000.
Clare Francis, editor-in-chief at MoneySupermarket, said: "This reinforces the importance of why you need to look beyond the headline rate and factor in the fees, when comparing mortgages. You need to calculate the total cost, which you can do by multiplying the monthly repayment cost by the number of months in the term, for example 24, and then adding on the set-up costs. If you are not confident about doing this yourself, an independent mortgage broker will be able to help."
Our mortgage partner, London & Country offers free, independent advice on 0844 209 8725.
The more you can save for a deposit, the greater access you will have to competitive mortgage deals. That said, don't assume that if you don't have a huge deposit you won't be able to get on the property ladder, as lenders are gradually increasing the number of deals available to those with a 10% deposit to put down.
You can improve your chances of being accepted for a mortgage by making sure you have a strong credit report. If there is anything on your credit report that you want to dispute or explain, you can add a 'notice of correction' free-of-charge, which all lenders are obliged to consider.
Your credit report is easy to obtain from on the credit reference agencies which you can compare at our credit reporting channel.
If you need any more help, contact our mortgage partner, London & Country for free, independent advice on 0844 209 8725.
Please note: Any rates or deals mentioned in this article were available at the time of writing.
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