Best UK mortgage deals of the week

Pedro Goncalves
A row of houses in Elgin Crescent, in Notting Hill, London, where a terraced house is currently for sale for over �12 million. The borough of Kensington and Chelsea is one of the most polarised in Great Britain, with some of the most expensive real estate in the UK just a short walk from several of the most deprived wards in the country - including the area around the Grenfell Tower. Picture date: Wednesday July 12th, 2017. Photo credit should read: Matt Crossick/ EMPICS Entertainment.
About 1.6 million existing borrowers have relatively cheap fixed-rate mortgage deals expiring this year. (Empics Entertainment)

Mortgage rates moved in different directions, with the average 2-year deal touching 6% as prospective homeowners struggle to find a deal they can afford, with more taking loans well into retirement.

The average rate on a two-year fixed deal this week stood at 6.09%, higher than last week's 5.99%, while rates for a five-year deal came in at 5.40%, lower last week's 5.46%, according to figures from Uswitch.

The Bank of England's (BoE) is poised to leave UK interest rates on hold at their 16-year high of 5.25% for a seventh consecutive time this Thursday.

With fewer BoE interest-rate cuts now expected in 2024 and with an impending announcement on interest rates, many of the big lenders kept their offers unchanged. The noticeable exception this week was Barclays, which increased the cost of some of its deals.

"Ahead of this week’s base rate announcement we’ve seen rates rise again across the board, with the average 2-year fix now sitting above 6%. The majority of economists don’t believe that the Bank of England will make any cuts to the base rate in a few days’ time on the 20th June. However, lenders seem to be divided in their actions, with some still choosing to cut certain rates, while most raise them," Kellie Steed, Uswitch's mortgage expert told Yahoo Finance UK.

Read more: UK house prices rise again in blow to first-time buyers

Meanwhile, young homebuyers are being forced to gamble with their retirement prospects by taking on ultra-long mortgages.

In the last three years, researchers have noted a surge in mortgage terms that see homeowners locked into mortgages running beyond the state pension age. This is particularly rife among those under 30, data from the BoE highlighted.

However, there might be some sign of relief as slowing inflation is likely to be well-received by homeowners and buyers pinning their hopes on a summer interest rate cut.

"Mortgage rates have flipped-flopped over the course of the year as financial expectations shifted causing a headache for nervous first-time buyers looking to get a foot on the ladder and existing homeowners hoping for better deals as they come to refinance," Alice Haine, personal finance analyst at Bestinvest, said.

Inflation has fallen back to the Bank of England’s 2% target for the first time in nearly three years.

Borrowers have long said goodbye to HSBC’s (HSBA.L) 3.99% for a five-year deal. The cheapest deal at the lender’s table is now 4.48% for five years, the same as last week's.

Looking at the two-year options, the lowest rate comes in at 4.86%, with a £999 fee. This is also unchanged from last week.

Both cases assume a 60% loan-to-value (LTV) mortgage, meaning buyers need to have at least 40% for a deposit.

The lender offers 95% LTV deals, meaning you only need to save for a 5% deposit. However, the rates are much higher, with a two-year fix coming in at 6.05% or 5.47% for a five-year fix.

This is because the rate someone can get will be determined by their financial situation and the size of their deposit. The larger the deposit, the lower the LTV, allowing buyers to access better deals because lenders consider them less risky.

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NatWest (NWG.L) has some of the cheapest deals on the market but no offer comes close to its previous 3.94% offer.

The best rates prospective borrowers can now get is an online-only deal offering 4.32% for a five-year deal with a £1,495 fee, assuming a 60% LTV. However, after five years the rate almost doubles to 8.24%.

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It offers 4.42% for green mortgages – this product is available for properties with an energy performance certificate (EPC) rating of A or B – and the fee drops to £995.

For a two-year fix, the cheapest a customer can get is 4.82% online, with a product fee of £1,495, unchanged from last week.

Santander (BNC.L) has also moved away from its under 4% mortgage with a five-year fix coming in at 4.28%, assuming you have a 40% deposit. This is unchanged from last week.

A 60% LTV two-year fixed rate with a £999 purchase fee comes in at 4.80%. A 75% LTV two-year fixed rate with a £999 purchase fee is priced at 4.88%, unchanged from last week.

Santander this month made reductions to selected fixed rates across its purchase, remortgage, buy-to-let and new build ranges. It is also launching a range of new large loan two-year tracker products, up to 75% LTV.

Examples of five-year fixed rates that have been reduced include:

  • 60% LTV five-year fixed rate residential purchase mortgage with £999 product fee is now priced at 4.28%, down from 4.38%.

  • 90% LTV five-year fixed rate residential purchase mortgage with £999 product fee is now priced at 5.10%, down from 5.20%.

Examples of two-year fixed rates that have been reduced include:

  • 85% LTV two-year fixed rate residential purchase mortgage with £999 product fee is now priced at 5.11%, down from 5.18%.

  • 90% LTV two-year fixed rate residential remortgage with £999 product fee is now priced at 6.03%, down from 6.10%.

Barclays (BARC.L) used to have the cheapest five-year deal for prospective homebuyers with a 40% deposit (60% LTV) that came in at 4.17%, with an £899 fee. No more – the lender has hiked the rate for that deal to 4.41%, where it has been for the past two weeks..

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When it comes to two-year mortgage deals, the lowest you can get is 4.99%, an uptick from last week’s 4.84%.

At Nationwide (NBS.L), five-year purchase fixed rates start from 4.59%, with a £999 fee for borrowers with at least a 40% deposit. This is unchanged from last week.

Assuming a £300,000 house where you need to borrow £180,000, this puts monthly payments at £1,009.72 per month.

Equivalent two-year rates start from 4.84%, also unchanged.

Halifax, the UK’s biggest mortgage lender, has kept its deals unchanged from the previous week.

The lender, owned by Lloyds (LLOY.L), offers a two-year fixed rate of 4.78% with a £999 fee for first-time buyers.

The equivalent five-year rate starts at 4.45% (also 60% LTV), also unchanged.

It also offers a 10-year deal with a mortgage rate of 4.93%.

As under 4% mortgage rates are off the market, it makes it harder for prospective homeowners to say they’ve secured a good deal.

The 4.32% deal NatWest offers appears to be one of the cheapest rates available but it requires a 40% deposit, so you will need a hefty amount of cash upfront to secure the deal. Barclays is close, with a 4.34% deal for a five-year fix.

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Given the average UK house price sits at £261,962, a 40% deposit equates to about £105,000.

Borrowers would need to spread their home loans over more than 70 years to afford the same mortgages on offer just two years ago, banks have said.

There is also a new mortgage product promising to help first-time buyers get on the property ladder with just a £5,000 deposit.

Yorkshire Building Society is offering a deal that enables first-time buyers across England, Scotland and Wales with a £5,000 deposit to purchase a property valued at up to £500,000.

It means first-time buyers could get on the ladder with as little as 1% deposit.

Mortgage holders and debt borrowers have been forced to pay record high repayments in recent years due to the UK's hiked base rate being passed onto customers by banks and building societies. Until now, the consensus was that interest rates have peaked and that 2024 will see the Bank start to cut rates as inflation eases.

However, even with inflation falling to target, traders are now pricing in just one or two rate cuts, compared to expectations of five cuts at the start of 2024.

If the BoE makes any cuts this year, mortgage rates will come down, but not as much as expected for 2024. Markets are pricing one cut in August and maybe another one later in the year.

Nicholas Mendes, head of marketing and mortgage technical manager at John Charcol, has said: “It’s important to note that until an official bank rate cut happens, lenders will exhibit mixed attitudes. Those with smaller pipelines may be more proactive in implementing reductions.”

About 1.6 million existing borrowers have relatively cheap fixed-rate deals expiring this year.

Watch: How to get on the property ladder by the age of 25

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