Historically, this is an extremely low rate and a welcome tonic to the borrower looking for certainty for a number of years at a rock-bottom price.
A five-year fix starting with the number 3 is a special thing. It sparks interest from borrowers because it is a cracking rate. It also paints a clear picture of the interest rate environment at that time.
If lenders feel able to offer pricing at that level, then the markets clearly don’t think interest rates are going to rise any time soon. It sends out a pretty strong message.
Of course, mortgage rates also come down because lenders want to pick up more business.
The middle of the year is a good time for this to happen as lenders look at their lending book and see where they are, comparing this with where they wanted to be by the middle of the year.
If they haven’t done enough lending to stay on track – and many of them, frankly, haven’t – then now is the time for a few cut-price offers to get customers through the doors.
But the interest rate environment is the real issue at the moment.
The International Monetary Fund (IMF) recently complimented the Chancellor on his deficit cutting approach and said that he should carry on with more of the same.
Inflation is expected to fall on the back of this and, if it does, the IMF concludes that interest rates won’t need to rise for some time.
This has led many to assume that means 2012 at the earliest and the markets have responded with lower borrowing rates. Hence, the rock-bottom fixed rates that some lenders are now offering.
So, what is there?
Five-year fixes start from as low as 3.89% for those with a 40% deposit and a hefty arrangement fee of £1,995. There are cheaper two-year fixes, of course, if you really want the cheapest guaranteed rates.
However, borrowers need to consider whether such a product is wise given that there is a chance they will have to remortgage just when rates are higher, which could prove to be expensive.
And while two-year fixed rates are cheaper, with five-year pricing at these levels, there really isn’t much in it.
What does this mean for the borrower?
Those who have been waiting for really cheap five-year fixes and have the necessary equity in their home/deposit to qualify for the best deals should now be able to find what they are looking for.
Those who don’t need that certainty can also find bargains of their own, with trackers falling to almost indecently low levels.
Indeed, until tonight, Santander is offering 1.49% over Bank base rate via brokers only, giving a pay rate of 1.99%. Borrowers need a 30% deposit and £999 fee.
That’s even better than the cheapest standard variable rates that some lucky borrowers may be sitting on and, if interest rates aren’t going to rise in the near future, may make perfect sense.
Melanie Bien is director at Private Finance
