Halifax undercuts Nationwide’s record 5-year fixed rate

Halifax undercuts Nationwide’s record 5-year fixed rate

Halifax has launched a five-year mortgage with an interest rate of 0.98 per cent, undercutting rival Nationwide which set a British record last month by becoming the first lender to offer a sub-1 per cent rate.

The new rate is available for homeowners looking to remortgage with a 40 per cent deposit. It comes with a £1,499 fee and allows customers to borrow as little as £25,000, compared to Nationwide’s much higher borrowing minimum of £275,000.

But Halifax’s deal is only available through selected mortgage brokers, unlike Nationwide’s. Halifax declined to reveal which brokers these are.

Because the product is exclusive, data firm Moneyfacts is yet to record the rate on its system, which - before Nationwide - had not recorded a sub-1 per cent rate on a five-year mortgage since it began collecting data back in 2007.

“The sub-1 per cent mortgages to surface have grabbed the spotlight as lenders drop their rates to bring in new business after the market endured an unsettled period due to the pandemic,” Rachel Springall, a finance expert at Moneyfacts, told FTAdviser.

Springall reckons “there is much more scope for lenders to cut pricing in the higher loan-to-value sectors”, where borrowers hold much smaller deposits than 40 per cent.

“But we have only recently seen product choice grow in this area of the market, after a significant drop due to the pandemic,” she added. 

In recent months, more lenders have been re-entering the 95 per cent loan-to-value space which saw a mass exodus last year on the eve of the pandemic.

But traditionally high barriers to entry for borrowers when it comes to 5 per cent deposit affordability criteria still exist post-pandemic.

“With this in mind, it may be a few weeks yet before lenders consider slashing their rates on higher loan-to-value mortgages and instead they may well just maintain their presence in the market or make minor tweaks for borrowers who have been waiting for deals to return.”

Halifax has also launched the market’s lowest rate on a two-year fixed mortgage, at 0.9 per cent. 

Chris Sykes, an associate director and mortgage consultant at Private Finance, told FTAdviser the double product launch “marks a continued battle between the major high street lenders to have the best offering in the market”.

He continued: “There is a lot less demand in the market, as housing supply is constrained and thus transaction volume is slowing, pushing lenders to compete harder than usual for the best business that is out there. 

“Moreover, this is indicative of lenders confidence in the housing market, economic outlook and lack of concerns about a potential base rate rise.

“Mortgage profitability for lenders will be declining with rates this low, however some of the mainstream players may be using these low rates to increase market share despite this.”

Borrowers can now get sub-1 per cent rates on two, three and five-year fixes. This marks a significant change in the mortgage market compared to a few years ago.