Defaqto on Leeds Building Society's 1.99% Two-Year Fix
View of Defaqto insight analyst for banking David Black
Black says: “The launch of a fixed rate mortgage charging below 2 per cent demands attention. The Leeds has come up with a cracking rate, which looks certain to attract significant demand while it remains available.
Taking account of the £1,999 fee element, if someone took out the Leeds mortgage at the end of this month, the mix of the interest and the fee would equate to an annual interest rate of 2.61 per cent for a £150,000 mortgage or 2.17 per cent for a £500,000 mortgage. Even though it has no legal, valuation or cashback incentives, it’s impossible to nominate any real challengers among the currently available two-year fixed rate mortgages.
The one distribution tweak to be aware of is that it is available for direct applicants at up to 75 per cent LTV and introduced business is limited to 70 per cent LTV. At 75 per cent LTV ,the average two-year fixed rate mortgage charges 3.52 per cent with an £844 fee and at 70 per cent LTV the average rate is 3.29 per cent with a £971 fee.
We don’t know when, or how quickly, the Monetary Policy Committee will change the bank rate but there must be some concern that it will be higher, and perhaps substantially so, by the time that the fixed-rate period of the Leeds mortgage ends on December 31, 2013. It’s all part of the perennial question: is a fixed or a tracker the best option and what initial rate period should be chosen?
There is another consideration that should be to taken into account. If I had taken out a mortgage four years ago I wouldn’t have been too concerned about the level of my chosen lender’s Standard Variable Rate, regardless of the fact that the SVR would obviously have been factored into the APR calculation. My assumption being that I would jump to another mortgage when the initial rate ended.
Now, for those who have been with their lender for a long time, it’s largely a matter of luck whether or not their lender has a competitive SVR. There is such a wide variance in the SVRs charged – ranging from 2.50 to 6 per cent plus. Coupled with the fact that a significant proportion of borrowers are effectively marooned on SVR, this means the relative competitiveness of a lender’s SVR has become an increasingly important factor. The Leeds Building Society currently has a fairly high SVR at 5.69 per cent and, while there’s no certainty about what it will be in two years’ time, it is a factor that needs to be considered.”