2 Year Fixed Rate Mortgages Lowest in Years

by catherinefullerton June 28, 2010

As many people are still reluctant to move from their historic low standard variable rate mortgages competition has increased to get you and I off these rates. Recent research conducted suggests that general 2 year fixed rate mortgages are at their very lowest with the average being just 4.5% but the best buy tables has the cooperative bank at just 2.95% and HSBC at 2.69% – very eye catching deals in themselves.

So what’s the catch with these low fixed rate mortgages ?

What lenders want you to do is to switch to one of their newer products and when that expires you’ll be placed onto a “special” variable rate which is much higher than the standard variable rates you are currently enjoying.

What many of the mortgage lenders have been doing recently is to “make up” their own version of a standard variable rate (SVR) and called it something else such as “homeowner rate” or other such terms. This rate is much higher than previous rates so they are trying to balance the books by increasing the rates people are on.

So the competition is increasing and the rates for most fixed rate products are falling fast with the average the lowest it’s been for the past 7 years even before the historic low bank of england base rate we have all been enjoying over the past couple of years.

Should you opt for a fixed rate deal now ?

This of course depends on your circumstances and if you are thinking of taking out a new mortgage product you should always seeks professional advice but if you are moving home or buying for the first time as a first time buyer then some of these products are certainly enticing.

In the days before the low standard variable rates most people would change their mortgage every 2 to 3 years to take advantage of a new deal as the SVRs were traditionally higher and much higher than any of the deals on the market place. The only thing that has changed over the past couple of years is the introduction of much higher application and product fees.

For example on the low rates we quoted above, the cooperative bank 2 year fixed rate product if you have more than 25% deposit has a product fee of just £699 but the SVR you are put onto at the end of the deal is a massive 4.24% which is much higher than the average for the market at present. If you have less than 15% deposit the best rate on offer is 4.99% so the lower the LTV the better the deal (apart from the SVR you are placed on once the product completes).

For the HSBC deal at 2.69% you have to have at least a 40% deposit and the product fee is a whopping £1,499 then you are placed on the SVR at a current 3.94% which is slightly higher than average in this market. If you have a 20% deposit the rate is up to 4.09% with a product fee of £599 and there are many other rates depending on your circumstances, if you are remortgaging or buying a new home or want to take equity out of your house.

The current best deals all require a big deposit

Since the banking crisis banks have become risk adverse and if you have a small deposit then the rates are going to be high. It’s best to look at the whole of market with your own criteria to see what rates are available and changing your LTV slightly may bring better deals your way but in any case the 2 year fixed rate mortgages for those with bigger deposits are the best for years but be careful on the SVR you are placed on once the product has come to the end of the term.

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