Focus on: Post Office unveils leading five-year fixed rate mortgage

Homebuyers or those looking to remortgage received a boost this week after the Post Office slashed the rate on its five-year fixed rate deal to 3.59%, as well as removing the £1,495 arrangement fee.

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The changes mean that the Post Office now offers the market-leading five-year fixed rate for those with a 25% deposit to put down, or the equivalent amount of equity in their property if remortgaging.

Here, we look at how the deal stacks up, and whether it could be the right mortgage for you…

What’s the deal?

The Post Office’s five-year fixed rate mortgage is fixed at 3.59% and has no application fee. The deal is available to homebuyers and those looking to remortgage who need to borrow a maximum of 75% of their property’s value.

While this rate is the same as Principality Building Society’s five-year fixed rate deal, the Post Office mortgage takes the top spot on best buy tables due to Principality’s £999 application fee.

The Post Office deal is portable, which means that if you move house you could take your mortgage rate with you. However, if you need to borrow any additional funds, these may be at a different rate – and the new house will need to be agreed as adequate security for the loan.

Any catches?

You need a deposit of 25% to qualify for this mortgage, which places the deal out of reach for most first-time buyers, many of whom are struggling to put together even a 5% deposit.

There is also a steep early redemption penalty of 5% for the term of the fix, so you must be certain that you are happy to be locked in for the full five-year term of the deal. The offer also doesn’t include any additional perks such as free legal fees.

Clare Francis, site editor at MoneySupermarket, said: “Although it has no application fees, the offer doesn’t include valuation or legal fees, so anyone looking to take this product needs to bear that in mind.

The Post Office is offering an alternative deal with free valuation and legal fees but at a higher rate of 4.09%.”

What’s the verdict?

The Post Office mortgage is a great deal if you have a deposit of 25%, and the fact that it comes without an application fee makes it even more appealing.

If you only have a small deposit, however, you won’t qualify, although there are five-year fixed deals at a higher rate available to those with just 10% to put down. HSBC, for example, is currently offering a five-year fixed rate deal at 4.79% with an arrangement fee of £999.

Top tip

The more you are able to save to a deposit, the better the mortgage rates you will be offered. Although the Post Office deal is market-leading for those with a 25% deposit, those who can afford to save even more than this can take advantage of five-year fixed rates under 3%, which you can read more about in  Laura Howard’s article.

Santander for example, is offering a rate of 2.99% for borrowers with a 40% deposit in exchange for a fee of £1,495. However, applicants must have held a current account with the bank for at least 30 days at the time of application - or have a mortgage with the bank already and be moving home.

Please note: Any rates or deals mentioned in this article were available at the time of writing.

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