10:51 12 July 2013
Chelsea Building Society is the latest lender to throw down the gauntlet in the mortgage war, following the launch of a two-year fixed rate deal at a new all-time low interest rate of 1.64%.
The move means the lender now stands at the top of the best buy tables in this camp, with Yorkshire Building Society's two-year fix at 1.69% - launched on the same day - coming in just behind.
Here, we take a closer look.
What's the deal?
Chelsea Building Society has launched a two-year fixed rate mortgage priced at 1.64%, reverting to 5.79% after two years (overall cost for comparison is 5.2% APR), making it the cheapest of its kind in history.
But, unlike the majority of competitive mortgages on the market that ask for a deposit of 40%, Chelsea's mortgage requires a slightly smaller 35% deposit.
However, the mortgage (which is available on borrowing up to £5million) also comes with a hefty arrangement fee of £1,545, and early repayment charges apply.
Who's it good for?
Chelsea's latest offering is ideal for anyone who has significant equity in their property, or a large deposit, who wants to fix their mortgage repayments for two years at a record low rate of 1.64%.
However, because the mortgage comes with a high fee, it makes most sense for people borrowing larger amounts as the lower rate will be of most benefit to them.
While Chelsea's mortgage will be more accessible to some borrowers, the 35% deposit requirement will remain unaffordable for many others. And even if they can stump up the deposit, finding a further £1,545 for the fee could prevent other borrowers from applying for the deal.
In fact, some borrowers will be better off applying for Yorkshire Building Society's new two-year fixed rate mortgage at 1.69%, reverting to 4.99% after two years (overall cost for comparison is 4.5% APR). The deal still requires a 35% deposit, but although the interest rate is higher than Chelsea's, the fee is £200 cheaper at £1,345.
For example, someone borrowing £150,000 with Chelsea would pay £16,181 in total, including the fee, over the two years. Yet borrowing the same amount with Yorkshire would bring down the total costs to £16,066 over the two-year term, a saving of £115.
Yorkshire's mortgage remains the cheapest option if you are borrowing anything less than £350,000, so it pays to do the maths.
If you're unsure which mortgage is right for you, contact our mortgage partner London & Country for free, independent advice on 0844 209 8725.
Also watch out for the 3% early repayment charge that must be paid should you need to get out of the Chelsea mortgage before the two years are up.
Chelsea Building Society's two-year fixed rate mortgage at 1.64% is a highly competitive deal and, providing you can afford the deposit and the hefty fee, is one well worth snapping up.
But, while it's now the lowest rate on record, remember that the mortgage fee can make a difference when it comes to deciding which mortgage deal is right for you.
Should you prefer to avoid paying mortgage fees altogether, the Post Office has a two-year fixed rate deal at 2.55%, reverting to 4.49% after two years. The overall cost for comparison is 4.3% APR, but while there is no arrangement fee, the mortgage does require a deposit of 40%.
Early repayment charges also apply.
The very best mortgage rates are still reserved for those with a large deposit, but if you are unable to cough up as much as 35% or 40% of the property's value, there are still plenty of competitive deals to choose from. Take a look at our mortgage channel to compare mortgages for all deposit sizes.
To further increase the chances of being accepted for a mortgage, make sure your credit rating is as good as it can be. Start by getting hold of your credit report from one of the credit reference agencies which you can compare on our credit reporting channel , and then take a look at Jessica Bown's top tips on how to improve your score.
YOUR HOME MAY BE REPOSSESSED IF YOU DON'T KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.
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