Skipton Building Society has today launched four of the lowest-interest two-year fixed rate mortgage deals on the market.
Its cheapest offer is just 3.35 percent with a term of two years and is available to existing customers who switch offers and have at least 40 percent equity in their home. However, it also comes with a high fee.
On a £200,000 mortgage, an interest rate of 3.35% would cost £985 per month if repaid over 25 years.
Skipton Building Society says it has launched the lower interest rate mortgage range to help existing borrowers at risk of default
The next lowest mortgage rate on the open market for someone taking out the mortgage for two years is almost 2 percentage points higher than what Skipton offers its mortgage customers.
Barclays’ two-year fix is aimed at those refinancing with at least 40 percent equity. The price is 5.25 percent and a product fee of £999.
For a £200,000 mortgage repaid over 25 years, this would result in monthly payments of £1,198.
Skipton mortgage borrowers with less equity in their homes can also secure market interest rates.
Someone with a mortgage worth 75 percent of their home’s value can get a 3.39 percent interest rate, someone with an 85 percent mortgage can secure a 3.49 percent interest rate, and someone who needs a 90 percent mortgage can still received 3.59 percent.
These are all well below the average two-year fixed-rate mortgage. According to Rightmove’s analysis, that is currently around 6.01 percent.
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Is it too good to be true?
Although Skipton’s tariffs are extremely low compared to the rest of the market, there is still one major catch.
All of these low interest rate deals include a 5 percent product fee that can either be added to the mortgage or paid in advance.
This means any Skipton customer who refinances under this deal will have to pay a fee equal to 5 per cent of their total mortgage amount. For example, someone with a £200,000 mortgage will either need to pay £10,000 upfront or increase their total mortgage debt from £200,000 to £210,000.
Offers with significantly higher rates but lower fees can ultimately cost less overall.
Anyone who decides to add the fee to their mortgage will save on their monthly payments by choosing Skipton’s offer.
However, they will likely have a larger outstanding mortgage at the end of the fixed term, which ultimately means higher costs.
Mark Harris, managing director of mortgage broker SPF Private Clients, said: “A two-year fixed rate of 3.35 per cent with a 5 per cent fee should be viewed as a 5.85 per cent deal, with the fee spread over the two years in comparison is.” with other products.
“While the monthly payments are offset by the high fee and are lower than other equivalent products, I am concerned about the longer-term impact.”
“Adding the 5 per cent fee to the loan could increase the mortgage balance by £10,000 (on a £200,000 mortgage).
“While this may be restructured in the future, failure to do so will increase the total repayment amount.”
Is it worth considering?
Skipton says it has launched this new mortgage range to service existing Skipton borrowers who are nearing the end of their existing contracts and for whom new contracts may be unaffordable.
It says the new band will allow those borrowers who require greater financial support to use the additional equity built in their homes to support them over the two-year period by offsetting a lower interest rate with a higher upfront fee.
Nicholas Mendes, technical mortgage manager at John Charcol
Ultimately, the fact that this is only aimed at Skipton’s existing mortgage customer base will mean that this is only likely to benefit a small number of borrowers, and even more so when you consider the 5 per cent fee.
Nicholas Mendes, technical mortgage manager at John Charcol, says: “If it looks too good to be true then it certainly is. So while the overall interest rate of 3.35 percent may seem great in the current market, the 5 percent processing fee is likely to outweigh the benefits of choosing this offer over a competitor.
He added: “This will benefit some of Skipton BS’ existing mortgage holders – particularly those with low levels of outstanding debt.”
“It is important that mortgage holders considering a fixed rate make the right choice and not be influenced by the interest rate, for example by choosing a two-year fixed rate rather than a five-year fixed rate.”
“The other consideration is that if you decide to add the origination fee to the mortgage to reduce the initial upfront cost, you will have to pay interest on the origination fee, which adds significant costs.”
SPF Private Clients’ Harris adds: “The choice is a good thing, provided it doesn’t confuse the consumer.” It’s always important to seek advice from a market broker who can explain the pros and cons.
“Other existing measures to reduce payments, such as changing the repayment vehicle or extending the mortgage term, should also be examined.”
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