If you’re thinking of buying a new home or re-mortgaging, you’ll be pleased to hear that lenders may be clambering over each other to offer you a low rate. Why? Because they’ve entered into a price war, playing a game of ‘how low can you go’ with mortgage rates in a bid to win customers and come out on top.
The mortgage market is incredibly competitive at the moment and with Yorkshire Building Society offering a mortgage at a rate of 0.89% last month, the battle lines have certainly been drawn.
In response, on April 26th, Santander launched mortgages from 1.14% on a 2-year loan. They also reduced interest on existing deals by 0.3 percentage points and released new products to their range, including buy-to-let remortgage options and new fixed term deals.
Martin Stewart, from mortgage brokers London Money, told the Daily Mail that with many lenders “behind on their lending targets”, they are now “fighting fiercely to get more customers on to their books and that’s why they are offering […] ludicrously low mortgages”. According to Stewart, this state of affairs is likely to continue for the “foreseeable future” – good news if you’re looking for a new mortgage any time soon.
Is it all good news?
If the tale of Atom bank is anything to go by, there might be a down-side for customers: with super-low rate deals becoming incredibly popular, incredibly quickly, there is a chance the mortgage market will become competitive for customers, as well as for lenders.
In the case of Atom bank, it released a 1.29% deal on a 5 year fixed-rate mortgage and then pulled it 9 days later due to ‘high demand’. According to Charlotte Nelson, of finance website Moneyfacts, this shows that offers like this “will only have a very short shelf life”, meaning customers will need to move fast if they want to get their hands on them. Unfortunately, this environment carries a risk that many people may move to get their hands on a cheap mortgage before they’ve properly thought about and before they’re ready.
It’s also important that people read the small print on all deals before trying to progress too far down the application process. Often the better the rate, the smaller the borrowing percentage up for grabs. For example, you may only be able to borrow 60% of the cost of your home on a low interest deal, compared to 95% on a higher interest rate. Your credit history will also have a role to play, as lenders may be looking for those with higher credit scores when approving people for their best deals. This is because your credit score is a perception of your creditworthiness – whether you’re likely to be able to pay a lender back or not. Consequently, the higher it is, the lower risk you are in the eyes of lenders. You can check your credit score by signing into your Noddle account.
Getting your hands on the best deals
When lenders release market disrupting low-rate deals, they often make them exclusive to a certain platform, such as their own website and store, or a certain number of brokers or comparison sites. You need to do your research to learn where you can find the best deals to make sure you’re seeing everything you may be eligible for.
When lenders start battling for your custom, you’re certain to see some really competitive deals come to the market. While this can be great news, it’s important to avoid being caught up in the headline price and to continue to do your research before applying for a mortgage.