New mortgage deal provides a rate of below 1% – should you apply?

Homeowners could possibly get a fixed-rate mortgage having a rate of below 1% the very first time since 2021, but do the numbers really accumulate?

TSB has launched a brand new two-year deal with an initial rate of just 0.99%, but its high up-front fee means borrowers may be able to cut costs by looking elsewhere.

Here, Which? explains how TSB’s deal works while offering suggestions about things to consider when remortgaging.

TSB launches 0.99% fixed-rate mortgage

TSB has launched a brand new two-year fixed-rate mortgage by having an initial rate of just 0.99%.

The deal is available to individuals remortgaging at as much as 60% loan-to-value (LTV) and comes with a fee of lb1,495. The maximum you can borrow is lb1m.

People buying a home will have to pay a slightly higher rate of 1.09%, having a fee of lb995.

How significant is TSB’s 0.99% deal?

TSB’s new deal may be the very first time we’ve seen a fixed-rate mortgage with a rate of below 1% since 2021, when HSBC offered a 0.99% deal.

Sub-1% mortgages do appear from time-to-time, but they’re almost always variable rate deals.

Indeed, Hinckley & Rugby building society happens to be offering a rate of 0.99% on its discounted variable rate mortgage.

The downside with this deal is that it’s based on the lender’s standard variable rate, which can increase anytime.

TSB’s deal is significant is it allows borrowers to lock in the 0.99% rate for two years, it doesn't matter what occur in the mortgage market or wider economy.

How do the best mortgage rates compare?

To qualify for TSB’s deal, you’ll need to be remortgaging and become borrowing at a maximum of 60% from the value of your property.

The 0.99% rate is slightly less expensive than competitors for example NatWest (1.03%), Halifax (1.08%) and Santander (1.1%).

With rates so similar, it can be difficult to compare deals. This means it’s vital that you concentrate on other aspects such as up-front fees.

TSB’s deal has a high up-front fee of lb1,495, as does Halifax’s. Santander’s deal has a fee of lb999.

Is TSB’s deal cheapest overall?

One of the best ways to compare mortgages would be to consider the overall amount you’ll pay during the fixed term – in this case, two years.

We’ve analysed how much the cheapest two-year fix available at 60% LTV would cost over two years, based on whether you pay an up-front fee of lb1,495, lb999 or zero. The below calculations below are based on borrowing lb200,000 on the 25-year term.

TSB’s deal provides a headline-grabbing initial rate and slightly lower monthly repayments, but when the fee is considered, you’ll actually wind up spending more over the two-year period than should you took a deal with a higher rate but a lower up-front fee.

Why in the event you remortgage?

When you take out a mortgage, the speed you’ll pay will usually be fixed for a few months – most often two or 5 years.

If you neglect to switch deals after this term, you’ll be managed to move on to your lender’s standard variable rate (SVR), that will usually be significantly higher.

According to Moneyfacts, the average two-year fix is currently priced at 2.57%, while the average SVR is 4.41%.

This means you could pay hundreds or even thousands of pounds a year extra if you can't switch at the end of your fixed period.

Is now a great time to remortgage?

The Covid-19 outbreak saw the amount of mortgage deals available on the market fall dramatically, however the worst now seems to be over.

Rates are presently very attractive, especially if you’re borrowing at a lower LTV level.

It’s currently possible to obtain a two-year fix at up to 80% LTV having a rate of below 2%. Rates at 90% and 95% LTV are significantly higher.

Low home loan rates have led to some homeowners deciding to borrow extra when switching, in an attempt to fund home improvements or renovations.

How to get the best deal when remortgaging

Switching a mortgage needn’t be a complicated process, but there are several things you can do to obtain in front of the game and be sure you receive a great deal.

• Start your research early: Your lender is deserving of in contact with the very best rates it may provide you with before the end of the fixed term, but there’s no need to wait. You can usually lock in a new deal six months before the end of the current one, so shop around to find the best deals well ahead of time.
• Don’t rule out staying with your current bank: In most cases, the very best rate is going to be available from another lender, but it’s still worth talking with your current bank prior to signing up elsewhere. Sticking with your lender will be quicker and easier than switching to a new one, so consider your options before taking the leap.
• Look in the total cost of the deal: As we discussed earlier, it’s important to not get used by the headline rate alone. First, element in other aspects for example up-front fees, income multiples and customer service reviews.
• Consider using a broker: If you’re not sure how to start with comparing mortgages, it’s worth taking advice from a whole-of-market mortgage broker, who are able to analyse all the deals available to find the right one for you.