Mortgage price war intensifies: Nationwide offers record-breaking deal at less than 1% fixed rate for five years

Britain’s largest mortgage lender has stepped up the mortgage price war after launching a record low rate of less than 1 percent with a fixed interest rate of less than 1 percent.

While rates of less than 1 percent are not uncommon for two-year deals, Nationwide is offering this rate to those with a 40 percent down payment who are transferring or moving, fixed until 2026.

The 0.99 percent rate on this five-year fixed-rate agreement is the lowest ever recorded for this type of home loan, according to Moneyfacts data.

However, there is a sting in the tail with a hefty fee of £1,499 – although this is much more steeped in the total cost of the mortgage compared to a shorter term solution.

Record Low: Nationwide has launched a five-year solution at just 0.99%

Mark Harris, general manager of mortgage broker SPF Private Clients: ‘Just when it seemed that the mortgage interest rate could not be lower, it worked.’

“While there has been a wave of biannual fixes of less than 1 percent in recent weeks, this is the first five-year fix associated with such a slow rate.”

The deal, available to both home movers and those looking to take out a new mortgage (not first-time buyers), comes with that high product fee, which can either be added to the mortgage or prepaid.

This means that a typical borrower with a £200,000 amortization mortgage with a 25-year term will pay £758 per month, if he chooses to add the fee to the mortgage.

The next best alternatives are HSBC’s 1.06 percent fee with a £1,499 fee and Natwest’s 1.09 percent fee with a £995 fee, according to Moneyfacts.

A £200,000 amortization mortgage over 25 years with HSBC’s cheapest deal would cost £765 a month if you added the cost to the mortgage too – or £766 at Natwest.

The benefits of Nationwide’s superior interest rates are likely to be felt even more by those in need of higher loan amounts.

Chris Sykes, associate director and mortgage advisor at Private Finance said, “This rate is almost unbelievably good for the right client with enough loan amount to justify the fee.

It is always worth comparing the cost of different loans as this may not be the best for a £100,000 loan due to the cost of £1,499 but for a £500,000 loan it could be considerably better than the second best alternatives.’

To compare total costs, use the This is Money true cost mortgage calculator to compare deals on both rates and fees.

Nationwide has once again launched a three-year fixed-rate mortgage offering for buyers seeking a fixed-rate period between the more common two- or five-year periods.

Those with a 40 percent down payment or equity can get a 0.94 percent rate that matches the equivalent rates on Nationwide’s two-year fixed mortgages.

The three-year fixed rate deals are all free and £999 cost option and are available to new buyers, new mortgagers and movers.

With Nationwide ramping up the mortgage price war, there is now some expectation that rates at other lenders could fall even further.

“While we may have bottomed out where rates will go, usually where one lender goes, the other follows, so I wouldn’t be surprised if we see companies like HSBC, Natwest and Santander follow suit in the coming weeks.” follow,” Sykes said.

“It really sends a signal regarding the long-term expectations of lenders. With inflation risks, they can’t be so concerned that we’re going to see high interest rates in the coming years or they wouldn’t be offering such rates.”

Has the mortgage market been disrupted?

While rate cuts continue to make headlines, the gap between those with large deposits and equity and those who don’t is still wide.

The average five-year fixed deal for those with 40 percent deposits or equity is 1.81 percent, according to Moneyfacts, while those with 10 percent deposits or equity the average rate is 3.47 percent.

Prior to the pandemic, in February 2020, there was only a 0.8 percent difference on average between those with 60 and 90 percent deposits or equity.

But there are positive signs that this gap may be starting to narrow again, which could be good news for those with smaller deposits and less equity in their homes.

Chris Sykes adds: “The current gap is due to the economic environment we are currently in as banks feel they are taking a higher risk today with the higher loan-to-value compared to pre-pandemic risk levels .’

“We have seen significant price cuts of 90 percent in recent months. When these products came back on the market during the pandemic, they were typically 3.5 to 4 percent, while they are much more competitive now.”

“In fact, about a month ago, I named a customer a 2.99 percent product as their best option and today I revised that to a 2.58 percent product against a 90 percent loan.”

“This is simply because of the falling rates — their circumstances were exactly the same.”

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