Mortgage rates have fallen to record lows, with Nationwide the latest lender to launch its cheapest ever deal.
Borrowers with big deposits currently have their pick of dozens of sub-1% mortgages, with rates as low as 0.84% now on offer.
Here, Which? takes a look at the best rates on the market, and offers advice on what you’ll need to think about before settling on a mortgage deal.
What’s happening in the mortgage rate war?
The mortgage rate war began back in May, when TSB fired the starting pistol by launching the first sub-1% fixed-rate mortgage seen since 2017.
Since then, lenders have been battling to offer the best rate, and there are now more than 100 sub-1% mortgages on the market.
Earlier this week, Nationwide entered the race by launching its cheapest ever two-year fixed-rate deal for homebuyers and remortgagers, with an initial rate of just 0.87%.
How can I get a sub-1% mortgage?
The very cheapest mortgages are available at up to 60% loan-to-value, meaning they’re available to home buyers with big deposits and people remortgaging with significant equity in their home.
If you’re remortgaging, you might be able to get an even lower rate than someone buying a property. Rates on two-year fixes start at just 0.84% for people remortgaging, compared to 0.87% for buyers.
If you’ve got a smaller deposit, don’t fret, as the rate war has had a knock-on effect across the mortgage market. It’s now possible to get a mortgage at up to 75% loan-to-value with a rate below 1%, as shown in the table below.
| Loan-to-value | Cheapest two-year fix | Cheapest five-year fix |
| 60% | 0.84% (TSB)* | 0.94% (Nationwide) |
| 75% | 0.94% (Platform) | 1.14% (Halifax)** |
| 90% | 1.97% (Barclays)** | 2.64% (Atom Bank) |
| 95% | 2.95% (Coventry Building Society)** | 3.19% (West Brom Building Society)** |
Source: Moneyfacts, 6 September 2021. *available for remortgaging only **available to buyers only.
Best rates at 60% loan-to-value
If you are borrowing at 60% loan-to-value, you should be able to get either a two or five-year fixed-rate deal with an initial rate below 1%.
The tables below show the best rates currently available for people remortgaging and buying a home respectively, using figures from Moneyfacts.
Cheapest rates for homebuyers
Two-year fix
| Lender | Initial rate | Revert rate | Up-front fee |
| Nationwide | 0.87% | 3.59% | £1,499 |
| Platform | 0.88% | 4.34% | £1,499 |
| Halifax | 0.89% | 3.59% | £1,499 |
Best rate with no up-front fee: 1.12% from Barclays
Five-year fix
| Lender | Initial rate | Revert rate | Up-front fee |
| Nationwide | 0.94% | 3.59% | £1,499 |
| Santander | 0.99% | 3.35% | £999 |
| HSBC | 1.01% | 3.54% | £1,499 |
Best rate with no up-front fee: 1.19% from NatWest
Cheapest rates for remortgaging
Two-year fix
| Lender | Initial rate | Revert rate | Up-front fee |
| TSB | 0.84% | 3.59% | £995 |
| Nationwide | 0.87% | 3.59% | £1,499 |
| Platform | 0.88% | 4.34% | £1,499 |
Best rate with no up-front fee: 1.09% from Santander
Five-year fix
| Lender | Initial rate | Revert rate | Up-front fee |
| Nationwide | 0.94% | 3.59% | £999 |
| HSBC | 0.96% | 3.54% | £1,499 |
| NatWest | 0.98% | 3.59% | £995 |
Best rate without an up-front fee: 1.23% from Virgin Money
Does a lower rate mean a cheaper deal?
The cheapest rates are bound to be tempting, but you’ll need to take the full cost of the mortgage into account before rushing in.
That’s because lenders are now charging up-front fees as high as £1,499 on their table-topping deals. Higher fees allow lenders to offer lower rates and recoup their losses elsewhere.
Above, we’ve listed the best rates available with no up-front fees. As you can see, you might need to pay a premium of around 0.25% for a fee-free deal, but in some cases a ‘more expensive’ mortgage might actually be cheaper over the fixed term.
If you’re unsure about which type of deal to go for, a mortgage adviser will be able to analyse deals based on their true cost, taking into account rates, fees and incentives.
How much lower could mortgage rates go?
Rock-bottom deals aren’t especially profitable for lenders, so they might not stick around for the long haul.
At the moment, there are no signs of rates levelling off, but much will depend on what happens in the market and the wider economy in the coming months.
If you’re coming to the end of your fixed term and need to remortgage, you’ll likely be better off locking in one of these cheap deals now rather than risking lapsing on to your lender’s standard variable rate while waiting to see if even cheaper deals emerge.
What would make mortgage rates rise?
Inflation and the Bank of England base rate will play a key role in what happens to mortgage rates in the coming months.
Inflation is currently at 2%, but some predictions have suggested it could rise as high as 4%. If this looks likely, the Bank of England might be tempted to increase its base rate from the current historic low of 0.1%.
The base rate dictates how much interest commercial banks pay to the Bank of England for borrowing, so a higher rate – or even the suggestion a rise is coming – would likely see lenders bump up their prices.
The Bank’s Monetary Policy Committee votes on the base rate eight times a year. Last month, it decided unanimously to maintain the current 0.1% rate, but lenders will certainly be keeping an eye on the next announcement on 23 September.
How long should you fix your mortgage rate for?
One of the biggest questions when it comes to mortgages is how long to lock in your rate for.
Borrowers most commonly fix for either two or five years. Five-year deals were once significantly more expensive, but the gap has closed in recent years. With this in mind, many borrowers have chosen to fix for longer to protect themselves from rate increases.
This is a good idea in theory, but it’s not the right move for everyone.
Five-year fixes usually come with high early repayment charges, meaning you could be charged thousands of pounds if you decide to pay the mortgage back early (for example if you move home and don’t transfer it to the new property).
With this in mind, it’s important to think of your own medium and long-term plans before settling on a mortgage term.
