Mortgage price war ramps up with 0.89% deal

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A mortgage deal with the lowest rate experts have ever seen at 0.89% has been launched as the home loans price war intensifies. 

Yorkshire Building Society is offering the loan to home buyers and people looking to remortgage - but they will need to have a deposit of at least 35%.

The two-year 0.89% standard variable rate (SVR) mortgage is being offered at a discounted rate.

The discounted level is 3.85% - and when the two-year period is up the rate goes up to Yorkshire Building Society's SVR, which is currently 4.74%.

Because the rate is variable, if the Yorkshire's SVR reduces during the two-year period, the 0.89% rate could also go down further.

But the rate could also increase if the building society increased its SVR.

Financial information website Moneyfacts said the 0.89% mortgage rate is the lowest on its records, which go back to 1988.  

Borrowers wanting to take out the 0.89% deal will also need to stump up a product fee of £1,495, or alternatively they could opt to pay a lower fee of £995 and have a higher mortgage rate of 1.05%.

In March, Yorkshire Building Society launched a 0.99% two-year fixed-rate deal for borrowers with a 40% deposit.

The building society said it is also making interest rate reductions of up to 0.16% on some new mortgages for borrowers with deposits of between 15% to 35%, as well as introducing new cashback options on home loans.

James Farrow, senior mortgage manager at Yorkshire Building Society, said: "The cost of funding has fallen in recent weeks and as a financially strong building society with no external shareholders to satisfy, we have the ability to pass this on to borrowers."

Rachel Springall, a finance expert at Moneyfacts, said borrowers looking for more flexibility over the shorter term may prefer a discounted variable deal, while those looking for some security may want to opt for a fixed rate.

She said: "In such a low interest rate environment it would be ideal for borrowers to consider overpaying their mortgage.

"As with any option, borrowers would be wise to weigh up the entire package before entering any arrangement."

The Bank of England's recent Credit Conditions Survey of banks and building societies found that lenders expect mortgage availability to have increased by mid-June. 

The Council of Mortgage Lenders (CML) said this week that it does not expect the general election on June 8 to have a marked effect on lending.