Santander and Northern Rock lead charge to chop mortgage rates as lenders once again push short-term fixes

Leading UK mortgage providers have once slashed the rates on their fixed-rate products, with Santander and Northern Rock to the fore.

Santander chopped the rate on its two- and three-year fixed products by up to 0.3 percentage points, taking its two-year first-time buyer mortgage (at 85% loan-to-value) to 4.64% with a £995 fee, or 4.69% for those re-mortgaging. Those with a 20% deposit can now obtain a two-year fix at 3.99% with a £995 fee.

Similarly, Northern Rock, has improved its fixed rates by up to 0.5 percentage points. The standout is a 2.99% deal for those with a 30% deposit, while its two-year Everyday mortgage is now available at 3.19% for those with a 25% deposit, with a £995 product fee (or at 3.66% with no fee).

Leeds building society has introduced a fees-assisted two-year deal at 3.9% on 85% loan-to-value, with a free valuation up to £335 and free in-house legal services for remortgages – 2.8% for those with a 25% deposit.

Providers have been pushing shorter-term fixes recently after they became unpopular when rates rose in anticipation of an imminent rise in the Bank of England base rate. Those fears have dissipated following weak economic data, so attractive headline rates on two-year fixes have mushroomed.

But the mortgages offer only short-term security and if rates rise in the next two years, borrowers will likely only be able to re-fix at a higher rate when the deal expires.

Ray Boulger of John Charcol says: “The shorter the timeframe, the less risk there is of significant rate rises and hence for clients in this category there is often a strong case for choosing a variable rate, either a tracker or a discount off the standard variable rate, to take advantage of the lower rates initially offered by such mortgages.”

Jule Wilson at Northern Rock says the group’s “switch-to-fix” mortgage, Freedom to Fix, was proving popular for this reason: “The uncertainty has allowed us to be creative. Our two-year Freedom to Fix tracker is doing well because it allows borrowers to track the base rate plus 2.08% (making a current 2.58%) for two years but also to switch to a Northern Rock fixed rate without incurring an early repayment charge. The market is very active right now, so we’ve been cutting rates to remain competitive.”

Switch-to-fix mortgages offer flexibility but usually come with a higher price-tag. Northern Rock’s two-year deal is more expensive than its tracker product, which is currently 2.48% – 0.1 percentage points lower than the Freedom to Fix mortgage.

David Hollingworth of London & Country Mortgages, says: “There’s certainly some competition between some of the big lenders in that area and this new deal comes hot on the heels of another Northern Rock deal at 2.89% but with a bigger fee. Abbey recently offered an exclusive deal through brokers at 2.89% with a £995 fee to 75% LTV but it was only open for seven days, but Woolwich is still offering a rate of 2.98% up to 70% LTV with a £999 fee.”

He highlighted another new deal in the past week, from Market Harborough building society at 2.75% up to 75% with a £1,995 fee. “Overall it’s good to see some competition filtering through into better products on offer to borrowers. Those that have been grappling with the decision of whether to switch to a new deal, fixed or tracker, should certainly keep a close eye on the market as deals improve across the board.”