13:05 25 December 2012
Having pegged down the cost of several of its mortgages by up to 0.30%, Yorkshire Building Society is now offering the lowest mortgage rate for borrowers with a 10% deposit. We take a closer look at the deal and how it stands up in the wider market.
What's the deal?
Yorkshire Building Society is now offering a market leading fixed rate of 3.94% until March 31, 2015, when the rate rises to its standard variable rate (SVR), currently pegged at 4.99%.
The deal is available to those looking to take the first step on the property ladder, move home or even just stay put and remortgage - so long as they have at least 10% as a deposit or in equity.
The mortgage is subject to a product fee of £995. Of this, £195 is paid upon application and is non-refundable. The remaining £800 is then added to your mortgage debt upon completion.
Overpayments of up to 10% a year are permitted on this deal penalty-free, which can be paid either monthly or as a lump sum. This is great news for those looking to hurry up and reduce their mortgage debt to beneath the sub-90% loan-to-value camp where the very cheapest rates on the market reside.
The mortgage comes with an early redemption charge of 3% if it is paid off or transferred before March 31, 2015, so unless you are sure you can tie yourself in for two years, it could prove expensive.
In addition, the first £195 of the product fee is non-refundable and needs to be paid when you apply, so you should be confident that you'll be accepted.
And you'll also have to make a note in your calendar to start looking for a new deal in 2015 so that you're not stung when the interest rate rises from 3.94% to Yorkshire's SVR. Although this is currently 4.99% it could potentially have risen by then too.
Lastly, while you can overpay on this mortgage, if you make any repayments over the 10% limit then you will be charged a penalty fee of 3% on the excess amount.
What's the verdict?
The fact that rates are heading south on mortgages requiring small deposits is great news - as these borrowers have been somewhat neglected in the recent swathe of mortgage rate reductions. However, if you are prepared to pay just a little more, you could side-step the £995 fee attached to this deal altogether.
For example, Britannia Building Society's two-year fixed rate deal, which is also available with a 10% deposit, comes with no fee at all but the rate is slightly higher at 3.99%.
David Hollingworth at independent mortgage broker, London & Country, said: "The differential in price between these two mortgage deals is so minimal that, in many cases, it would not be worth paying the fee and taking the lower rate."
That said, the Britannia's interest rate is only fixed until February 28, 2015 - a month earlier than Yorkshire's offering - when it changes to Britannia's SVR, which currently sits 4.74% (but again, could change).
Early repayment charges also apply to the Britannia mortgage, at a rate of 2% if you redeem any time up to February 28, 2014 which falls to 1% if you redeem any time between March 1, 2014 and February 28, 2015.
Regardless of whether you're looking to remortgage your current property or take out a mortgage on a new place, it's important that you compare a range of deals on a like-for-like basis.
This means factoring in the attached arrangement and product fees rather than being dazzled by the low mortgage rate alone. Particularly low rates can often attract the highest arrangement fees, which means you could actually end up paying more over the term.
You can compare a range of 90% deals on our mortgage channel. If you require further help or need some numbers crunching, pick up the telephone and call MoneySupermarket's independent mortgage partner, London & Country on 0844 209 8725. You will not be charged for the service.
Please note: Any rates or deals mentioned in this article were available at the time of writing.
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