Focus on: 5-year fixed rate mortgages fall to new 2.64% low!

If you're thinking about remortgaging or moving house, there really couldn't be a better time to do it.

Mortgage rates are in free-fall and just two weeks after First Direct launched the lowest ever five-year fixed rate deal at 2.69%, Yorkshire Building Society has gone one better, pulling a rate of 2.64% out of the bag.

As a further blow to First Direct, Yorkshire's mortgage, which guarantees your payments for the next half-decade, offers a lower fee of £1,495. However, borrowers will need to stump up a slightly larger deposit of 40%.

So is this the right mortgage for you?

What's the deal?

Yorkshire Building Society has launched a five-year fixed rate mortgage priced at 2.64%. The move, which knocked First Direct's offering at 2.69% off the top spot, means Yorkshire's mortgage is now the cheapest of its kind in history.

In order to qualify for this market-leading five-year fix, you'll need a deposit of 40% - this is higher than the 35% deposit required with First Direct's five-year deal.

However, Yorkshire pulls it back by offering a lower mortgage fee. While it is still a hefty £1,495, it's cheaper than First Direct's £1,999.
Louise Scott, spokesperson for Yorkshire Building Society, said: "We’ve launched some fantastic two-year fixed rates products recently.

But we’re also committed to helping those customers who want to secure their payments over a longer term. That’s why we’ve launched this market-leading, lowest-ever, five-year rate, which is available to customers with at least a 40% deposit, and whether they are moving home or remortgaging."

Any catches?

The main catch is the 40% deposit that's required to seal the deal. It's a sizeable sum of money and means that Yorkshire's offering will be off-limits for many people.

Even if you can afford to stump up the deposit, you'll have to cough up a further £1,495 for the fee. Don't be tempted to add the fee to the mortgage as you'll end up paying interest on it. 

Also be aware that because fixed rate mortgages require you to tie in for the duration of the deal, should you need to get out of the mortgage early, you'll have to pay a hefty early repayment charge. You'll pay 5% of the outstanding loan amount in the first three years, 4% in year four, and 3% in year five.

These charges also apply if you go over the limit for overpayments. You can overpay on your mortgage up to a total of 10% of the outstanding loan per year – anything over this is charged.

What's the verdict?

Fixing your mortgage repayments for five years at a rate of 2.64% is likely to appeal to a large number of borrowers and as a result, this latest offering from Yorkshire Building Society should prove popular. Providing you can stump up the deposit and the hefty fee, it's the best deal of its kind available today.

However, if you're reluctant to fix for so long, there are plenty of competitive shorter-term fixed rate mortgages on offer just waiting to be snapped up.

For example, you can take advantage of Chelsea Building Society's two-year fixed rate deal priced at 1.89% with a £1,695 fee. Or Yorkshire Building Society's two-year fixed rate mortgage offers a rate of 1.94% with a slightly lower fee of £1,495.

Both of these deals require a deposit of 40%, but even if you can only scrape together a lower deposit of 10%, you don't have to miss out as rates are still at historically low levels.

Taking out a two-year fixed rate deal with Chelsea Building Society, for example, means you can enjoy a rate of 3.69% with a £1,695 fee. Or, if you'd prefer a smaller fee, Yorkshire Building Society's two-year fixed rate mortgage priced at 3.79% comes with a fee of £995.

Top tip!

With mortgage fees becoming increasingly expensive, it's now more important than ever to factor them into the equation when comparing mortgages. In fact, research by MoneySupermarket shows the average fixed rate mortgage fee has risen by 17% since June 2012.

As a result, it can sometimes work out cheaper to opt for a higher mortgage rate if it comes with a lower fee. For example, if you borrowed £150,000 with Chelsea Building Society's two-year fix at 1.89%, with a fee of £1,695, you'd pay £16,761.72 over the two-year period.

Yet if you borrowed the same amount over two years with Norwich & Peterborough's mortgage at 1.99%, which has a lower fee of £995, you'd pay £16,236.20, a saving of £525.52.

Clare Francis, mortgage expert at MoneySupermarket, said: "It's very easy to be attracted by low headline rates when looking at mortgages, but you must also factor in the fees you'll be charged to take the mortgage out.

Set-up costs can vary greatly between providers so taking the time to work out the total amount you have to repay over the term of the offer is essential."

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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