Barclays in mortgage rate move

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Published: Thursday 8th January 2015 by The News Editor

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Competition to attract home owners looking to take shelter from interest rate rises for the next decade has intensified, with a bank launching the lowest 10-year fixed mortgage rate that experts have ever seen.

From today, Barclays will cut the rate on a 10-year mortgage deal it is offering from 3.45% to 2.99%. Borrowers will need a deposit or equity of at least 40% to take out the deal, which also comes with a £999 fee.

Financial information website Moneyfacts, whose records go back 21 years, said the rate is the lowest it has ever seen on a 10-year fixed-rate mortgage.

The number of 10-year fixes on the market has surged over the last year, with 77 products now on the market compared with only eight a year ago, according to Moneyfacts’ figures.

With expectations that the Bank of England base rate will move off its historic 0.5% low at some point in the coming months as the economy recovers, lenders are preparing for a wave of home owners, many of whom may be sitting on a standard variable rate (SVR), to react by jumping onto a new deal.

According to industry estimates, about one million home owners have never experienced an interest rate rise, having climbed onto their first rung of the property ladder while the base rate has been at rock bottom.

Around nine in 10 new mortgages being taken out are products with a rate which is fixed in for a certain period of time, giving borrowers a cushion against any immediate impact of the base rate increasing.

Rachel Springall, a spokeswoman for Moneyfacts, said: “The market is rife with 10-year fixed deals today as more and more lenders launch attractive long-term deals to entice customers.

“We are also seeing the lowest rates on record ever. Lenders will be aiming to under-cut each other to get the attention of new borrowers and retain existing customers.

“Borrowers will need to alter their mindset and see longer deals as a safeguard rather than something they are tied down with.

“However, they must be mindful of any high penalties that come with it if they do decide to move their deal during the term.”

Barclays’ 10-year fix is available on home loans of between £5,000 and £1 million.

The deal allows people to reduce their balance by up to 10% each year. If they exceed this, or if they want to end their 10-year commitment early, they will face charges.

Within the first seven years of the deal, the early redemption charge is 6%, meaning that if someone wants to end their mortgage completely, they face a charge of 6% of the outstanding balance.

If they pay more than 10% off their balance in any one year during the first seven years, they pay a 6% charge on the sum they have gone over by.

In the final three years of the mortgage, the early redemption charge falls to 3% if the home loan is ended early or more than 10% is paid off it in any one year.

Barclays’ new offering undercuts previously market-leading 10-year rates being offered by TSB and Santander at 3.44%.

David Hollingworth, spokesman for London and Country mortgage brokers, said it could be worth some people bearing in mind that TSB’s deal, which is fee-free, only locks people in for five years.

He described the rate being offered by Barclays as “astonishingly low” and said that it could encourage some people who may have been weighing up whether to take a five-year fixed rate to opt for a 10-year fix instead.

Someone looking for a five-year fix can currently choose from deals with rates sitting just under 2.5%, he said, putting the Barclays 10-year fix around half a percentage point higher.

But Mr Hollingworth added that with the long-term commitment they require, he expects 10-year fixed-rate deals to remain “relatively niche”.

Published: Thursday 8th January 2015 by The News Editor

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