Focus on: Grab a sub 2.5% mortgage rate with zero fees

Mortgages usually come with a fee attached and – especially when the rate looks very low – this can be quite hefty. But did you know you can now get a great mortgage rate without having to pay a penny for the privilege?

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First Direct has just improved a raft of its mortgage deals – reducing the rates on 11 of its repayment and offset products by up to 20 basis points. This includes a two-year fixed-rate now at just 2.49% with no fee attached.

What’s the deal?

With the new First Direct two-year repayment mortgage you can fix your mortgage at 2.49% for 24 months completely fee-free. At the end of the two-year period, the rate reverts to a standard variable rate (SVR) of 3.69%.

The deal is available to first-timers and remortgagers up to a maximum loan-to-value (LTV) of 65% (meaning you need a deposit of 35%). The maximum loan size is £1,000,000.

Unusually, borrowers will be able to make unlimited overpayments on this deal without being charged – even during the fixed rate period. What’s more, it is also possible to port this mortgage when you move home.

Who’s it good for?

This mortgage will appeal to those who want the security of knowing exactly what their monthly payments will be for the next two years, but who also want to keep upfront costs to a minimum.

In addition, this deal will be attractive to those who are expecting a cash windfall such as a bonus or savings account to mature which they can pay into the mortgage penalty-free.

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Any catches?

While this fee-free deal may sound very appealing, you do need to hold a 1st account – First Direct’s current account – to qualify, from which you must pay your mortgage repayments.

This will mean switching your current account if you are not already a First Direct customer. But you will be rewarded for your efforts because at the moment customers who switch to First Direct will receive £125 in cashback.

You also need to be aware that while unlimited overpayments are permitted, an early repayment charge will apply if you decide to repay your mortgage in full during the fixed rate period.

What’s the verdict?

This mortgage is a great option for anyone looking for a competitive two-year fix without having to pay costly fees upfront, but it can be easily beaten on rate.

At present, one of the cheapest two-year deals is from the West Brom Building Society which is offering a rock-bottom rate of 1.48% for a 40% deposit. However, the fee on this deal is a hefty £2,395.

HSBC is also offering a very low rate of 1.49% on its two-year fixed-rate deal which is available for the same deposit. The fee on this deal is £1,999.

The fee is slightly lower on Chelsea Building Society’s two-year fix at £1,545, but the rate here is also slightly higher at 1.64%. You will only need a 35% deposit for this deal.

A far lower fee of £845 is payable on Yorkshire Building Society’s two-year fix, with a fractionally higher rate of 1.66%.

In all cases, it is important to factor in the fee to the overall cost of the mortgage – especially when it comes to shorter-term deals.

Equally, there are other fee-free two-year fixes on offer to compare. Yorkshire Bank has cut all its fees on a two-year fixed rate mortgage also payable at 2.49% – but it’s only available at up to 60% of the property value. Early repayment charges also apply.

While the First Direct deal is not market leading in terms of rate, the fee-free offer is not to be sniffed at. For some borrowers it could be a very cost-effective option – especially those with the means to overpay.

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

YOUR HOME MAY BE REPOSSESSED IF YOU DON'T KEEP UP REPAYMENTS ON YOUR MORTGAGE.

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