First sub-1% five-year mortgage launches

First sub-1% five-year mortgage launches

Nationwide has become the first lender in British history to offer a sub-1 per cent rate on a five-year fixed rate mortgage. 

Today (21 June), the high street bank launched a 60 per cent loan-to-value mortgage with a five-year fixed interest rate of 0.99 per cent with a £1,499 fee - available to home movers and those looking to remortgage.

HSBC currently comes in second, offering a 1.06 per cent five-year fixed rate. According to Moneyfacts data, which dates back to 2007, the UK mortgage market has never seen a sub-1 per cent rate on a five-year fixed product in that time.

“The mortgage market has officially gone crazy,” Aaron Strutt, product and communications director at Trinity Financial, told FTAdviser.

“It wasn’t that long ago that a five-year fix at 5 per cent, or just below, was good value. It’s a sign of the times and how cheap access to funding for lenders is, that they can offer such cheap rates.”

Strutt pointed out borrowers now have the chance to get sub-1 per cent on two, three and five-year fixes. 

Asked how long he thinks these rates will stick around, Strutt added: “It doesn’t seem like there will be too many changes. For years, people said rates would go up. The pandemic happened - rates went up a little - but now they’re on a downwards spiral.

“I had a bet with my colleague years ago that we’d one day see sub-1 per cent rates, but he didn’t think it would happen.”

Even at these record rates, lenders’ balance sheets are being bolstered. “Lenders are borrowing at 0.1 per cent, the Bank of England base rate, plus overheads, they’re still making money on these supremely cheap rates.”

On Nationwide’s latest mortgage product launch, Rachel Springall, a finance expert at Moneyfacts, told FTAdviser “someone needed to make a move at some point”.

She added the way lenders have spoken about margins suggests they are “obviously stretched”, so need to try and get borrowers in.

“These rates could have short shelf-life, though,” Springall thought. “If borrowers can stomach the £1,499 fee and be accepted, it’s an obvious move. But it’s important to price it all up against what else is on the market”.

Mark Harris, chief executive of mortgage broker SPF Private Clients, didn’t expect to see more than the sub-1 per cent two-year fixes which have landed in recent weeks.

“Just when it looked as though mortgage rates couldn’t possibly go any lower, they have,” said Harris.

“With Nationwide also offering a two-year fix at 0.91 per cent, the building society has done the double with the cheapest two- and five-year fixes on the market.

“As lenders are cash-rich and eager for business, we wouldn’t bet against others following suit and offering similarly cheap products in coming weeks.”

In addition to its newest five-year fixed mortgage, Nationwide has also made reductions to its two-year fixed 95 per cent loan-to-value mortgage for first-time buyers to the tune of 0.24 percentage points, bringing the overall rate down to 3.35 per cent.