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Homeowners rush to switch mortgages: these are the best deals over two, three, five and 10 years

The Telegraph logo The Telegraph 28/06/2017 By James Connington
Homeowners rush to switch mortgages: these are the best deals over two, three, five and 10 years

Competition among lenders is intensifying and driving many mortgage rates yet lower.

This keener pricing, coupled with a growing sense among borrowers that higher rates may now be edging closer, is driving a surge in switching as homeowners dash for the best deals.

The latest lending industry figures, published last month, show re-mortgaging on the rise across the country. In expensive regions where loans are typically higher the trend is more pronounced: re-mortgaging in London, for instance, has jumped to an eight-year high.

Lending overall is expected to slow through 2017 and 2018, which should add to competition and keep rates low for the forseeable future as lenders continue to chase new business.

>> Scroll down for our list of the current best-buy mortgages

Lenders are offering historically low rates on 10-year fixed deals, although some of these have begun to increase. Historically, such long fixes have been unpopular with borrowers, but have seen something of a resurgence thanks to current levels of uncertainty and the security they provide.  

This guide tells you everything you need to know about fixed-rate mortgages and the best deals available. It is regularly updated as events change.

What affects mortgage rates?

The pricing of fixed mortgage rates depends on several factors, but mostly whether banks can get their hands on cheap money to lend out. They usually get it from savers or by borrowing from other banks on the money markets, buying money at a certain rate – the "swap" rate – for a certain period.

These swap rates react to expectations of future interest rates and inflation, which affect the price of mortgages. 

Swap rates dropped sharply last January amid global economic turbulence, and again following the Brexit vote, but rose again at the end of 2016.

Mortgage rates are expected to rise in response, although the level of competition between lenders and some market stagnation may delay reactions. 

Action taken by the Bank of England can have an impact too. The Bank has made it clear in the past that if runaway house prices are a risk and ultra-low mortgage rates are a cause, the latter will be policed away – by heaping new costs or capital requirements on the banks.

Lenders could then pass on the increased cost of funding to mortgage customers by increasing their rates.

What's the difference between fixed and variable rates?

If you take out a fixed-rate mortgage the interest rate you pay will be fixed for an initial period, regardless of rate changes made by the Bank of England or moves in the markets.

Fixed rates are typically for two, three, five and occasionally 10 years, with longer terms costing more. Once the fixed period ends, borrowers are pushed on to the lender's "standard variable rate", which can be much higher.

Variable mortgage rates can vary during the mortgage term, meaning borrowers will not have the security of knowing how much their repayments will be every month.

However, if the British economy dips, interest rates will probably decrease, making the repayments substantially cheaper. Also, because the mortgage comes with the uncertainty of interest rates either rising or falling in the future, the initial rate is often much lower than with fixed mortgages.

The cheapest fixed deals

It's not all about rate. Lenders like to add extra charges, such as arrangement fees.

We have calculated the full cost of some of the best deals, based on a £350,000 home with a loan of 25 years.

Two scenarios are included: a buyer with a 40pc deposit (£140,000) and a buyer with a 10pc deposit (£35,000). The first is intended to represent someone remortgaging or moving home, and the second to represent a first-time buyer.

For those who want the peace of mind of a fixed monthly cost, and for anyone who doesn't want the risk of fluctuating interest rates, fixed-rate mortgages are appealing.

Below we list the best on the market, according to London & Country, the mortgage broker, using the two different deposit scenarios.

Two-year fix

40pc deposit

  1. Yorkshire Building Society has a two-year fix at 1.24pc which comes with £825 in feesMonthly repayments would be £814​ with a total cost over the two years of £20,312 including the fee.
  2. Halifax offers a 1.83pc deal with £500 in cashback. Monthly repayments would be £873, with a total cost of £20,378 over the two years including the fee.
  3. Natwest has a competitive two-year fix priced at 1.31pc with fees of £847. Monthly repayments would be £821 and the total cost would be £20,378 including the fee over the fixed term. 

10pc deposit

  1. Yorkshire Building Society's 1.97pc deal comes with fees of £1,075. Borrowers would pay back £1,331 a month, or £32,948 for the two-year term including the fee.
  2. HSBC offers a two-year fix at 1.94pc with fees of £1,262. Monthly repayments are £1,326 and the total cost over two years would be £33,050.
  3. Atom Bank has a two-year fix at 1.99pc with fees of £1,250. Monthly repayments are £1,334 and the total cost over two years is £33,186.

Three-year fix

40pc deposit

  1. Halifax is charging 1.35pc on a three-year fix with £1,499 in fees. Total repayments would be £825 a month. The total cost would be £31,134 over three years, fees included. 
  2. Yorkshire Building Society offers a three-year fixed rate at 1.49pc with £1,075 in fees. Total repayments would be £839 a month, or £31,215 over three years including the fees.
  3. Yorkshire Building Society also offers a three-year fixed rate at 1.42pc with £1,325 in fees. Total repayments would be £832 a month, or £31,218 over three years including the fees.

10pc deposit

  1. Coventry Building Society offers the cheapest deal with its three-year fixed-rate mortgage at 2.29pc with £499 in fees. Repayments would be £1,380 a month, or £50,430 over the three years including the fee.
  2. HSBC has a 2.29pc offering with £1,262 in fees. Repayments would be £1,380 a month, for a total cost of £50,907 over the fixed term. 
  3. Accord offers 2.37pc with £1,325in fees. Monthly repayments would be £1,393 for a total cost of £51,459 over the fixed term. 

Five-year fix

40pc deposit

  1. HSBC has a 1.69pc offering with £1,262 in fees. The deal would cost £859 per month and £52,750 over the five years.
  2. Principality Building Society offers a 1.67pc deal, with £1,000 in fees. The mortgage would cost £857 in monthly repayments, totaling £52,785 over the five-year term.
  3. Yorkshire Building Society has a 1.69pc deal, with £1,325 in fees. The mortgage would cost £859 in monthly repayments, totaling £52,790 over the five-year term.

10pc deposit

  1. Leeds Building Society offers a 2.8pc deal with £0 in fees. Borrowers would pay back £1,461 a month, or £88,120 over the five-year term all included.
  2. Leeds Building Society also offers a five-year fixed-rate mortgage at 2.7pc, which comes with £999 in fees. Repayments would be £1,445 a month or £88,155 over the five years. 
  3. Atom Bank has a 2.74pc offering with £1,250 in fees. The deal would cost £1,452 per month, or £88,270 over the five years, fee included.

Ten-year fix

40pc deposit

  1. First Direct's 2.49pc deal comes with £35 in fees. Repayments would be £941 a month, for a total cost over the fixed term of £113,190.
  2. Coventry Building Society has a deal at 2.49pc with fees of £499. Monthly repayments would be £941, and the total cost over the term would be £113,670. 
  3. Barclays (Woolwich branded) has a 10-year fix at 2.49pc with fees of £999. Monthly repayments would be £941, for a total cost of £114,180 over the fixed term.

10pc deposit

  1. For those with a 10pc deposit, Nationwide has a 3.89pdeal, with £999 in fees. Monthly repayments would be £1,644, or £198,750 in total over the 10 years, including the fee.
  2. Nationwide also offers a 3.99pc deal with zero fees. Monthly repayments would be £1,661 for a total cost over the fixed term of £199,830. 
  3. TSB offers a 10-year fix at 4.04pc with £200 in fees. Monthly repayments wou210000ld cost £1,670, for a total cost including fees over the fixed term of £200,560.

If you’re considering fixing for 10 years don’t forget to factor in the effect of early repayment charges. Some deals are more expensive to end early than others.

  •  Use our  mortgage calculator  to work out how much you will need to repay on your mortgage.


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