Brokers are braced for the arrival of sub-1 per cent mortgages but are unconvinced a race to the bottom will benefit borrowers in the long run.
Last month HSBC launched a two-year deal at 1.16 per cent at 65 per cent LTV with a £1,499 fee. Yorkshire Building Society followed suit last week with a 1.14 per cent mortgage at 65 per cent LTV with a £1,345 fee, or as an offset mortgage at 1.34 per cent.
The deal from Yorkshire is the lowest fixed-rate mortgage on the market.
But brokers say headline-grabbing low rates do not automatically mean products represent the best deal for borrowers.
John Charcol senior technical manager Ray Boulger says low rates help lenders by bumping them to the top of online best-buy tables, but he adds there is a risk of borrowers focusing too much on the rate and not on getting the best deal overall.
He says: “Most best-buy tables are not best-buy tables; they’re lowest-rate tables, which are not necessarily the same thing.
“In the two-year market in particular there’s a lot of game playing by lenders that rely on getting in the tables as a cheap way of getting footfall, and if they have to give up a little bit of margin to do so, that’s cheaper than spending a bucketload on advertising.
“This is one of the areas where brokers can offer a lot of value. Although it’s not difficult for brokers to work out the best deal by trading off rate for fee, it is surprising how clients find that quite difficult.”
Association of Mortgage Intermediaries chief executive Robert Sinclair agrees a temptingly low rate with a high fee may not be the best deal for cash-strapped borrowers who need smaller over-all loans.
He says: “If you’re paying a higher fee, that can be justified only if the capital amount of the loan is significant. You’ve then got to look at the relative cost of that over the term. But that’s the kind of thing that’s quite hard for customers to compare easily.”
Yet brokers believe market competition will lead eventually to sub-1 per cent rates on two-year fixed loans.
London & Country Mortgages director Pat Bunton says: “We’ve had a very competitive mortgage market for a long time now.
“This is heightening the battle for new business and we see that reflected in the marketplace in terms of pricing.
“We are getting closer to that magic sub-1 per cent level.”
Chadney Bulgin mortgage partner Jonathan Clark says: “With lenders still having their hands largely tied by criteria, some will resort to attention-grabbing rates and I see no reason why 0.99 per cent two-year fixes will not be available in the near future.
“The question is, are those rates sustainable? I was telling my clients two years ago that similar products were not sustainable, but here we are, two years later, with no sign of any rate rises. So who knows?
“For the more cautious borrower, five-year fixes at around 2 per cent will still be the obvious choice.”
Moneyfacts finance expert Rachel Springall says rates may not go below 1 per cent but the market “has not seen the end of the mortgage rate war”.