Super sub-3% mortgages

CottagesThe weather wasn't the only thing that was heating up in July. The UK mortgage market was seriously sizzling too, with a wide choice of cheap deals that are about as low as they can possibly go.

Fabulous five-year fixes
The highlights of this new breed of super-low mortgage rates are the gobsmacking five-year fixed rates at less than 3%.

Make no mistake, these really are all-time low rates and give borrowers the best of both worlds – ultra competitive rates plus medium term payment security.
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HSBC was the first off the blocks with its five-year fix at 2.99%. You need a large 40% deposit and a hefty £1,499 fee to bag this deal, but that is only to be expected when you consider the rate compared to similar deals.

Next, Santander shook things up by trumping the HSBC deal with its own 2.99% five-year fix. The products are virtually the same, although Santander's arrangement fee comes in at £4 less - £1,495.

However there is one big catch with the Santander deal – it isn't available to everyone. You must either have a current account with the bank (that you've held for more than a month) or an existing mortgage – and it's only available to home movers (so remortgagers and first-time buyers need not apply).

To put these rates into context, I've popped the monthly repayments below based on a small, modest and larger mortgage amount.

£100,000 mortgage = £474 a month

£150,000 mortgage = £711 a month

£250,000 mortgage = £1,184 a month

Dazzling discounts
If you want to get an even cheaper mortgage, discounted rates offer some of the lowest rates of interest available. They really are the best way to minimise your monthly repayments in the short term. For example, HSBC's two-year discount at 2.49% would give you monthly mortgage repayments as follows, based on the relevant mortgage size:

£100,000 mortgage = £448 a month

£150,000 mortgage = £672 a month

£250,000 mortgage = £1,120 a month

However, remember that your rate is discounted from the lender's standard variable rate, which can change at any time.

In 2012 a number of lenders have already done this, including Halifax, Yorkshire Bank and Bank of Ireland, even though the Bank of England's base rate has remained unchanged.

In other words, the rate you pay can be increased entirely at your lender's discretion, and there is no cap as to how high it can go. If you're comfortable with this risk, a discounted rate will allow you to benefit from seriously low rates right now.

Terrific trackers
If you want more transparency over how and when your rate can be increased, a tracker rate might be perfect. It is pegged to the Bank of England's base rate and your lender can only increase your rate in line with a base rate rise.

Therefore if the base rate remains low for the next couple of years – as many commentators predict it will – your mortgage rate will also stay low.

Even better, if you choose a term tracker, you could benefit from a low rate for the whole term of the mortgage. So if interest rates stay low for the next 10, 15 or even 20 years, you will maintain your low monthly repayments.

Of course, there are no guarantees that rates will stay low for 10 months let alone 10 years. But the other great thing about term trackers is that they usually come without early repayment charges, so you are free to switch without penalty at any time. With rates starting at under 3% from HSBC, they are currently looking very appealing indeed.

Access denied
These super sub-3% mortgages are truly great rates for those who can access them. And there's the rub.

Trouble is, the cheapest mortgages on the market are still only available to those with a large deposit. That usually means 40%, although a handful of uber-cheap rates are available if you have 25% upfront.

Clearly this is a massive sum for many folk to muster - especially first-time buyers.

But it's not all bad news – mortgage rates are low across the board, and deals for those with a small deposit are getting better.

For those who do have a large amount upfront, below are some of the best sub-3% deals on the market:

Sizzling sub-3% deals

LENDER

TYPE OF DEAL

RATE

FEE

MAX LTV

HSBC

2-year discount

2.49%

£499

60%

HSBC

2-year fix

2.64%

£1,999

60%

HSBC

Term tracker

2.64%

£999

60%

Leeds BS

2-year discount

2.85%

£999

75%

Post Office

2-year tracker

2.89%

£995

75%

NatWest

2-year tracker

2.99%

£999

60%

Cumberland BS

3-year discount

2.99%

£495

75%

HSBC

Term tracker

2.99%

Fee-free

60%

HSBC

Term tracker

2.99%

£599

70%

Santander

5-year fix

2.99%*

£1,495

60%

HSBC

5-year fix

2.99%

£1,499

60%


*Available to existing current account customers or mortgage customers moving house only.

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