Homebuyers and remortgagers could now pay under 1% interest with a new mortgage from Leeds Building Society – but is the deal as good as it appears?
The discounted variable-rate mortgage offers an attention-grabbing rate of 0.99% for 2 years (APRC 4.9%).
However, applicants will need a hefty deposit of 35% or more to access the offer, and this isn’t the only real caveat you need to bear in mind.
Which? compares the new mortgage and explores how it comes even close to other products available on the market.
How Leeds Building Society’s 0.99% mortgage works
The 0.99% deal is a discount mortgage – a variable-rate mortgage which, in this case, tracks the lender’s standard variable rate (SVR) minus 4.7%.
At as soon as, Leeds Building Society’s SVR is 5.69%, so you’d pay just 0.99%. But lenders can raise or lower their SVRs whenever they like, so your repayments may potentially vary from month to month.
The mortgage comes with a hefty upfront fee of lb1,999, which pushes in the total cost from the deal to a relatively high APRC of four.9%.
The deal is just available at a loan-to-value ratio of 65% or less, meaning you’ll require a deposit (or, if you’re remortgaging, equity) of at least 35% to become eligible.
What happens when the offer expires?
After the very first two years, you’ll start paying a 1% discount around the SVR, which at current rates would call at your interest jump to 4.69%.
If you were repaying a lb200,000 mortgage over Twenty five years, and all sorts of additional factors remained unchanged, your instalments could escalate from lb752 per month to more than lb1,133 following the first couple of years. Although, of course, you’d have paid down a number of your debt by this point, so your actual payments could be slightly less.
There are plenty of deals offering a better interest rate than 4.69%, therefore it may be worth remortgaging following the initial period expires.
Should you get a discounted variable-rate mortgage?
Discount mortgages can feel particularly appealing right now, with several offering rates that beat comparable fixed-rate mortgages.
But be cautious before signing up for any variable deal in the current environment.
In November 2022, and again in August 2022, the Bank of England raised the base rate by 0.25%, and base rate increases tend to have a knock-on effect on lenders’ SVRs. In fact, since the August base rate increase, 62 out of 80 mortgage brokers (78%) have upped their SVRs, Moneyfacts data shows.
Leeds Building Society last increased its SVR in the wake of the November 2022 base rate hike, leaving it on hold after the August decision. But at 5.69%, Leeds’ SVR is already expensive when compared to industry average of 4.9%.
If you got Leeds Building Society’s 0.99% mortgage and the base rate rose through the same amount within the next 2 yrs, the SVR may potentially climb to five.94% – dragging your rate of interest to at least one.24%. And if it rose a second time, the SVR could climb to six.19%, leaving you paying 1.49%.
Is the bottom rate likely to rise soon?
Two base rate hikes within the next two years isn't away from arena of possibility.
The Bank of England has signalled it might boost the base rate up to 2% from the current level of 0.75%, although it also said any increases could be in a gradual pace.
Even when the base rate stays the same, lenders can opt to raise their SVR for any other reason they choose. With Brexit casting a shadow of uncertainty within the market, it’s hard to predict exactly what the coming two years will bring.
If you’re considering getting a discounted variable-rate mortgage, use our mortgage interest calculator to determine what your repayments would seem like should you be moved onto a greater interest rate.
Would you be better off having a fixed-term deal?
At a 65% loan-to-value ratio, you've got a number of choices for low-rate mortgage deals.
If you’d like the certainty of a guaranteed rate of interest, the cheapest fixed interest rate readily available for 2 yrs at 65% LTV can also be from Leeds Building Society at 1.39% (APRC 4.9%). Like the discount variable-rate mortgage, the arrangement fee is lb1,999.
Alternatively, Yorkshire Building Society offers a two-year fixed-rate mortgage for 1.43% at the same LTV. Having a more sensible arrangement fee of lb995, this deal works out more cheaply than the Leeds offer over the lifetime of the mortgage, with an APRC of 4.3%. However, this deal isn’t open to those remortgaging.
These rates are higher than what you might pay for a reduced variable-rate deal, but do offer the peace of mind that your rate could be unaffected by economic changes or base rate hikes.