- Rates are currently the lowest on the market and the lowest YBS has ever offered
- Monthly payments rise and fall with the Bank of England base rate
- Base rate likely to increase substantially in near future
- Trackers allow borrowers to pay more with little or no penalty fees
A new mortgage from the Yorkshire Building Society offers home buyers a market-leading interest rate of just 0.78 percent, as the cost of borrowing to buy a home continues to hit record levels.
The two-year fixed deal, also available to those in need, is a tracker – meaning borrowers will pay the Bank of England’s base rate, currently 0.10 percent, plus 0.68 percentage points.
It is only available to borrowers with a 35 per cent deposit, and there is a £995 fee attached.
Record: Yorkshire Building Society’s 0.78% mortgage rate is lowest in its history
Tracker mortgages are variable rate deals that track the Bank of England base rate, and add an additional margin on top.
If the base rate falls, the interest rate charged will also fall – even within a given period – but if the base rate rises, the interest rate will also rise.
The 0.68 per cent tracking figure may also change after the fixed two-year period.
YBS has also introduced several other new Tracker deals, including a 0.89 percent Tracker rate offered to home buyers or those re-mortgaging with a 25 percent deposit, which comes with a £995 fee. All new products offer a free standard evaluation.
It comes in the midst of a mortgage rate war, where lenders have been competing to offer always-low interest rates to those with large deposits to capitalize on the pandemic-fuelled housing boom.
Plus, the Bank of England’s base rate is currently at a record low of 0.1 percent, which means banks can borrow money cheaply and pass some of that savings to their customers.
Changes: Borrowers taking tracker mortgages have agreed to force their monthly payments to account for movements in the Bank of England’s base rate – and that could change sooner rather than later
Most of the deals offered so far are on fixed-rate mortgages rather than variable rates like trackers.
Because the base rate is so low, a customer taking out a tracker mortgage will likely see their monthly payment stay the same or rise rather than fall.
This means there is little incentive to do so, at least from an interest rate perspective.
So what are the arguments for someone pledging a tracker right now?
The main advantage is flexibility. Trackers like variable rate mortgages often have small penalties for paying off the loan early, or for overpaying.
While some tracker pledgers have no early repayment charges, the new YBS products will charge an ERC of 1 percent of the loan amount if the borrower repays it within the stipulated period of two years.
While less than many fixed-rate mortgages, which typically have an ERC of 1.5 to 2.5 percent, this can still be a significant amount.
Katie Braine, banking specialist at financial information service Defaqto, says: ‘Rates are the lowest they have ever been, but the lowest rates may not be tailored to your individual circumstances.
Trackers are generally suitable for someone who wants flexibility, as they generally have no ERC, and/or no restrictions on overpaying.
“But the overpayment for these YBS products is limited to 10 percent per annum plus an ERC of 1 percent within 2 years,” she says.
The minimum fixed rate available for someone with a 40 percent deposit is currently 0.79 percent with the platform.
‘For mortgage amounts in excess of £200,000, the 0.78 percent tracker with YBS may be a good option when compared to the minimum two-year fixed rate of 0.79 percent available on the 60 percent platform, 1,499 The pound has a very high fee. ,’ adds the brain.
‘But it’s only a good idea if you’re willing to take the risk of interest rates going up, as monthly payments will increase.’
Finding a deal with a higher interest rate but without an arrangement fee can also be cheaper overall, as the table below shows.
The main downside of getting a tracker right now is that the base rate may change relatively soon.
Those looking to pay off their home loan early may do well to check out the tracker, as they often have lower penalties than fixed mortgages – and in some cases none at all
Nicolas Mendes, mortgage technical manager at John Charcoal, explains that someone applying for a YBS rate may now find that their interest rate increases even before their first payment.
“With the prospect of a bank rate hike early next year, and possibly early December, any borrower who takes out this mortgage exclusively for purchases may never actually pay this rate.”
‘Bank rate hike almost certain’ [further] In the next 2 years, that would also be meaningful factoring.
‘There are products without ERC available in the market that may be more suitable for those looking for more flexibility.’
He suggests that homeowners talk to an independent, whole-market mortgage broker to make sure they are getting the right product for their needs.
Are tracker rates really the cheapest?
Taking into account any fees to meet the total annual cost, this money has been seen as the best tracker mortgage on the market right now.
For someone buying a £250,000 home with a 35 percent deposit, YBS’s 0.78 percent rate comes in second—after Barclays Tracker, which has a much higher rate but no fees.
|the provider||tracker or fixed||Tracker Details||starting rate||fees||annual cost|
|barclays||tracker||base + 1.08%||1.18%||£0||£7,509|