The past year has seen a highly competitive mortgage market and the final quarter has seen this battle over rates heat up further.
One such example was Halifax launching a 0.98 per cent tracker mortgage last month but brokers noted that while the sub one per cent rate made for interesting headlines, it was unlikely to have any wider impact.
Innovation more important
Niamh Byrne, senior mortgage and protection adviser at Financial Advice Centre, says she finds it “disappointing” when lenders “forget their obligation to the regulator to lend responsibly” and pursue headline-grabbing rates to attract new business.
She added: “While this may have the effect of flushing out potential new borrowers, when reading the fine print it is also clear that this offer has limited eligibility.”
Dominik Lipnicki, director of Your Mortgage Decisions believes borrowers have recognised that sub one per cent rates “are not sustainable” and says customers have become used to rates being at record low levels for the past 10 years.
He goes on to say what is needed now is “innovation in criteria” and a “recognition by lenders that the way we work and get paid in 2019 is very different to what it was even 10 years ago”.
Other unlikely to follow
While the market has seen lenders aggressively cut rates to compete for a while, the brokers Mortgage Solutions spoke to feel there is not much chance the sector will see many other lenders try to match Halifax with a similarly low rate.
Jeni Browne, sales director at Mortgages for Business, says: “I don’t imagine we will see a rush of lenders looking to emulate this offering – with such a low rate in the first two years, this product is clearly a loss leader for Halifax during this time.”
She added that other lenders were unlikely to find this approach “commercially attractive” due to margins currently being squeezed across the mortgage market.
However, Byrne acknowledges it is usually around this time of year that lenders tend to “launch competitive offers in a scramble” to meet end of year targets, suggesting there was scope for further reductions to come.
Not for all customers
However, Lipnicki says as lenders appear to engage in a race to the bottom they end up “fishing in the same pond”, leaving many people still unable to buy their first home or remortgage onto a better deal.
Bryne agrees noting that the cheapest deals often leave first-time buyers, remortgagers and those without 40 per cent deposit having to look elsewhere.
“Given current economic and political uncertainty, over 95 per cent of new business is being placed on fixed rate deals,” she adds.
But for those willing to go against the majority, Browne notes a variable rate deal could be a “great option” for homemovers who are “fairly comfortable” as she expects significant base rates increases over the next two years are unlikely.