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Lowest 10-year rate sparks mortgage war

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The lowest ever rate for a 10-year mortgage in the UK has been introduced, as providers continue to undercut each other, to the benefit of home buyers.

The lowest ever rate for a 10-year mortgage in the UK has been introduced, as providers continue to undercut each other, to the benefit of home buyers.

Coventry Building Society’s latest deal offers a fixed rate of just 2.39 per cent for the next ten years, and was introduced mere hours after HSBC launched its own 2.79 per cent deal.

Analysts are hailing a ‘mortgage war’ as providers seek to offer the most competitive rates on the market. And with the Bank of England indicating that the base rate may be cut in the near future, even more mortgage deals look set to flood the market.

It is great news for home buyers, with a number of providers seeking to undercut each other, including Leeds Building Society, which has moved to cut its already low 2.89 per cent deal to 2.84 per cent.

Record low rates

The offer from Coventry Building Society set a new benchmark, however, with the all-time low rate of 2.39 per cent coming with a product fee of £999, or a fee-free equivalent available at 2.69 per cent.

Although the loan is only available for those with a 50 per cent deposits, the building society will also be launching a ten-year fixed rate for borrowers with a 35 per cent deposit, available at 2.49 per cent.

HSBC’s 2.79 per cent deal will offer 70 per cent loan to value, which is likely to appeal to those with a lower deposit, but such is the raft of offers being introduced across the market that home buyers are unlikely to struggle for choice.

In 2014 there were just 14 ten-year fixed rate mortgages available, whereas today there are 130, at more competitive rates than ever before.

Short-term deals

There has also been significant movement in the short-term mortgage market, with ultra-competitive two-year deals being launched by many major providers. In June, HSBC introduced the cheapest ever two-year fixed rate mortgage, offering a rate of just 0.99 per cent.

First Direct has meanwhile cut its fee-free rates to 2.79 per cent for a two-year fixed rate mortgage for those with a ten per cent deposit or equity in their home, and rolled out a 1.28 per cent offer for those with a 40 per cent deposit.

The number of cuts is providing significant encouragement to home buyers, but it is unlikely to stop there, according to Andrew Montlake from mortgage broker Coreco.

He described Coventry Building Society’s ten-year fixed rate at 2.39 per cent as “a watershed moment”, adding that it ushers in “a new battleground for lenders”.

Further falls

Due to the competition in the market, predicted rates could be cut even further in the short term; a view shared by David Hollingworth, from fellow broker London & Country, who said there is scope for more lenders to “sharpen up their rates”.

The movement is being supplemented by the Bank of England, which has hinted it could slash the base rate from the all-time low of 0.5 per cent. This has resulted in swap rates – at which lenders borrow and which therefore influence the rates that borrowers are charged - falling significantly.

Although the new ten-year fixed-rate low of 2.39 per cent is making waves, interest rate changes and increasing competition within the market is likely to see mortgage rates fall further still, which can only be good news for new home buyers.

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