Yorkshire Building Society launches two-year tracker mortgage with the cheapest ever initial market rate
Yorkshire Building Society has launched a two-year tracker mortgage with the cheapest ever initial market rate of 0.78%. As mortgage rates continue to creep down, there's no better time to check to see if you could save £1,000s on your mortgage.
Below we've a full rundown of how this new mortgage works, although it won't be right for everyone, so use our Mortgage Best Buys tool to benchmark Yorkshire's deal against other offers. Also remember that when it comes to choosing a mortgage it's normally best to use a broker as the market can be complex. See our Cheap mortgage finding guide for help finding a broker.
How Yorkshire Building Society's new mortgage works
Here are the main features of Yorkshire's new deal – just remember that it's a tracker, meaning there is a risk the interest rate could go up or down in line with the Bank of England's base rate:
- It's available to all borrowers, including first-time buyers, remortgagers and home-movers.
- The fee is £995. Which is around the same ballpark as the usual £1,000ish fees you tend to see on mortgages.
- Most can only get it if they have a substantial deposit. The minimum deposit you'll need if you're not buying a new-build is 35%. This means the amount you can borrow from the bank – known as the loan-to-value (LTV) – cannot be greater than 65% of the property's value. The minimum loan is £25,000, the maximum is £5 million.
- The interest rate is 0.78%. This is made up of 0.68% plus the Bank of England base rate, which is 0.10%. However, this could go up or down depending on changes to the base rate. After this initial two-year period, you'll be moved on to the bank's standard variable rate (SVR), which is currently 4.49%.
- If you cancel the tracker before the two years is up, you will face early repayment charges of 1%. This is charged at 1% of the outstanding mortgage balance. So if, for example, the outstanding balance on your mortgage is £100,000, then your early repayment charge will be £1,000.
Yorkshire also has other trackers, including a 0.89% tracker offered to homebuyers and remortgagers with a 25% deposit and a two-year rate of 2.59% for people with a 5% deposit.
Rates continue to creep down, but is a tracker mortgage right for you?
While Yorkshire's rates are incredibly low, as it is a tracker, it may not be right for everyone and there is a chance your payments could increase. Ray Boulger from mortgage broker John Charcol cautioned: "With a base rate increase likely early next year, and possibly as early as December, any borrower who takes this mortgage, especially for a purchase, may never actually pay this rate."
However, Aaron Strutt, of mortgage broker Trinity Financial, added: "For the moment, it seems unlikely the base rate will be going up any time soon. After pulling many of their variable rate deals, more banks and building societies are offering flexible tracker rate mortgages again."
- Tracker mortgages are great while the base rate is low, but that could change. Yorkshire's tracker follows the Bank of England's official borrowing rate. This doesn't mean it's the same as the base rate, just that it moves in line with it. The plus side of a tracker mortgage is that you have the certainly that only economic change can move your rate. But if rates rise, so you will yours.
- What type of deal is best for you? Fixes vs variables, two-year vs five-year fixes and more. Fixes are useful if you need to know your monthly payments won't change during the initial term – though fixes come in different lengths. A five-year fix can make sense if you don't plan to move in that time, for example, but if you do want to, you'll need to check whether the mortgage is portable. If you fixed for five years at 1%, your interest rate would remain at 1% for those five years – it couldn't change. Whereas with a five-year tracker at 1%, this 1% rate could go up or down during that time. See fixes vs variables.
- You can use a mortgage calculator to benchmark the best deals, but unless you're a real expert, it's normally best to use a mortgage broker to actually do the switch – they can explain ALL your options, and lenders' borrowing criteria. To benchmark the best deal, put your info into our Mortgage Best Buys comparison tool and see our Cheap mortgage finding guide for help finding a broker.