Yorkshire Building Society has taken the lead in the race to offer the lowest mortgage rate after cutting its two-year deal to a head-turning 0.89% – but you'll need a hefty deposit to qualify and the lender could decide to increase the rate during the term.

Competition between mortgage lenders has been hotting up over recent weeks, with Atom Bank this week pulling its eye-catching 1.29% five-year fixed-rate mortgage after it had only been on the market for a week, due to "huge demand".

Now another lender has entered the fray in the form of Yorkshire Building Society (YBS), which has today sliced its two-year discounted standard variable rate (SVR) to just 0.89%. However, it's unlikely the deal will be available for long, so you'll have to be quick if you're interested in snapping it up.

There are also certain strings attached – YBS reserves the right to hike the rate during the term, the deal is only available for those looking to borrow up to 65% of the value of their property (the loan to value, or LTV) and the product comes with a hefty £1,495 fee.

YBS is also offering an alternative £995 fee option at 1.05%, along with other rate reductions of up to 0.16 percentage points on selected 65%, 75% and 85% LTV mortgages.

David Hollingworth of London & Country mortgage brokers told us: "This rate highlights how competitive the mortgage market is at the moment. Lenders are really trying to push to be the lowest rate to catch people's attention. YBS is offering a range of options so people can find the right balance between rate and fee."

Download our free 2017 guides for Remortgaging or First-Time Buyers which explain all the key info.

What is a discounted SVR mortgage?

A discounted SVR mortgage means that YBS could decide to increase (or decrease) the rate you pay over the two-year term, as it moves in line with YBS's SVR, not with the Bank of England base rate (currently at 0.25%) as many standard tracker mortgages do.

Even a small rise could make a big difference. For example, a 0.25 percentage-point rise in the SVR over the two years would mean you're paying 1.14% – higher than other deals currently available. On a £150,000 mortgage debt, that would work out at more than £400 extra over the two years.

If you want more certainty, you may be better off looking at a fixed-rate mortgage deal, where the rate is locked in for the term of the deal – usually two, five or even 10 years.

YBS currently offers the lowest two-year fix on the market at 0.99% at 60% LTV with a £1,495 fee. This is compared with other low deals such as HSBC's 1.14% two-year fix at 60% LTV with a £999 fee.

What if I want a longer fix?

Despite having to pull its 1.29% five-year fix, Atom Bank is still offering the lowest products for those wanting to fix for longer. It still has a 1.34% five-year fix at 75% LTV with a £900 fee.

Longer fixes are usually best for those who have no plans to move in the next five years and want the security of locking in a set, cheap rate for a decent spell.

The risk is that if you exit the deal early – a work move overseas, for example – you can end up paying a nasty penalty of up to 5% of your outstanding mortgage. And while you may be able to port it if you move home (ie, move this mortgage to your new property), you may have to also pay a higher interest rate on new borrowing.

YBS wades in on mortgage price war with lowest rate EVER of 0.89%
The 0.89% deal is only available for those looking to borrow up to 65% of the value of their property

What if I'm not near the end of my mortgage?

If you're within up to seven months of the end of your mortgage term, you may be able to lock in a good rate now ahead of any market rises.

For full info on how to find these deals, and the risks, see long lock-in mortgage help, and always contact a mortgage broker if you're unsure.

You may also be able to save if you're on a pricey fix – as long as your early repayment fees aren't too exorbitant.

Use our Ditch your fix? tool to check if you can save by switching from a pricey fix.