Over the last few years, building societies have been a dominant force in the mortgage market, particularly with fixed-rate products. Even though mutuals already have a big presence in the bestbuy tables, the battle for mortgage supremacy stepped up another gear this week when Yorkshire Building Society, through its Chelsea brand, hit the market with a five-year fix at a record low rate of just 3.19 per cent, maximum 70 per cent loan-to-value (LTV) ratio.
While the eye-catching interest rate may send a shiver down the spine of some of its competitors, there is a slight sting in the tail in that the ultralow rate comes with a chunky product fee of £1,495.
Having crunched the numbers (based on a 25-year mortgage term), the new Chelsea five-year fix is the top deal as long as you want to borrow more than £117,000. Anything below this figure then you’re better off with the Co-operative Bank’s current 3.59 per cent five-year fixed rate (to 75 per cent LTV) with no product fee.
The low rate from Chelsea BS emphasises the importance of establishing the true cost of any mortgage deal (rate AND fee) and factoring in the term of your home loan.
To give you an idea of cost difference, if you’re looking to borrow £150,000, the Chelsea BS deal including the big fee will cost you £45,069 over the five-year term, some £423 cheaper than the Co-op Bank fee-free mortgage at 3.59 per cent.
The larger the amount borrowed, the less important the fee becomes, so on a mortgage of £300,000 for example, the Chelsea deal works out £1,222 cheaper over five years.
If you’re unsure which mortgage to plump for, seek the help of a mortgage professional and get them to do the sums on your behalf.
Competition is driving down mortgages to levels not seen before, but don’t be swayed by a headline rate as it may not be best deal for you.
Consumer confusion over bank switch plans
The crusade to force banks to make the task of switching your current account a simpler, faster and smoother process has been gathering pace over the last 18 months, but latest reports suggest that consumers simply don't understand what improvements are in the pipeline for 2013.
A report out today from First Direct claims that 87 per cent of people are unaware or confused about the changes being brought in to improve current account switching services and make it easier for them to change banks.
With more than 40 per cent of people never having switched their account, there are concerns that the current level of confusion could see switching levels stagnate, despite the best efforts of the industry to make drastic improvements.
It's important that people understand the positive changes, including a seven-day time limit for switching a current account, the payment of compensation to inconvenienced customers and the introduction of an automatic redirection service for standing orders and direct debits.
Without this extra confidence in the process, we'll be left with the same scenario where nearly a quarter of people are dissatisfied with the service received from their current account provider, but prefer to grudgingly put up with it rather than endure what they believe to be an arduous process and one fraught with problems.
Bond rivals fight it out
The launch of new, fixed-rate bonds from FirstSave this week will help maintain the positive momentum in the one and two-year markets.
At 3.6 per cent gross, the one-year, fixed-rate bond will see FirstSave fighting it out for top spot with AA Savings and Shawbrook Bank, both already offering a rate at the same level.
The 4 per cent, two-year rate is impressive too, although BM Savings will still edge the prime spot in the best buys at 4.05 per cent gross.
This time last year the best one-year rate was 3.25 per cent and the best two-year rate 3.65 per cent.
Andrew Hagger, Moneynet.co.uk