The battle of the mortgages in the UK has reached new levels as a company is now offering a mortgage for less than 1% interest.
The loan is being offered by Chelsea Building Society and comes with a 0.98% interest and requires a 35% deposit.
Experts have said that they believe this to be the first instance in which a mortgage has been offered at below 1%.
The mortgage is a two year tracker deal that has an interest rate of 0.48% above the 0.5%. It charges a £1,545 fee and an additional £130 application fee.
After the first two years the mortgage reverts to a standard variable rate for the rest of the time. This SVR currently sits at 5.45% which is down from 5.65%.
This new deal will offer 0.98% which is lower than the previous record of 1.08% that Post Office offers with a £1,995 fee.
This new announcement is expected to up the competition even more than it already has been between mortgage lenders. Market analysts are now predicting the arrival of a two year fixed rate deal below 1%.
The lowest fixed rate two year deal that has been offered in the past was a two year deal from Yorkshire Building Society. That deal sits at 1.07% and was released last month.
HSBC have led the way in the area of five year fixed rate deals with a deal below 2% being offered last month. That announcement was labelled a watershed moment for the industry by market analysts.
Rachel Springall from Moneyfacts said:
“Breaking the 1 per cent barrier is sure to grab the attention of borrowers looking for a competitive rate on their mortgage.”
“We believe this is the lowest tracker ever, and suggests there is a potential that fixed rates could also drop below the 1 per cent mark. The banks are continuing to undercut each other and it shows no sign of slowing.”
“I think the price war could continue for the next few months, if not the next year.”
Many people now expect the Bank of England to raise interest rates next summer – with the base rate currently at a record low of 0.5%. It is this speculation that has allowed banks to be confident enough to offer such low rates.
Banks have also been allowed access to a lot of cash for lending due to the governments funding for lending scheme.
“The banks have all this cash from the Funding for Lending scheme and now they need to hand it out to borrowers to show the Government they are using it ñ or they could find themselves in trouble.”
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