by Mark Johnston
Tesco Launches Cheapest Mortgage.
It seems that mortgage availability has generally increased since the Bank of England and the Treasury launched the £80 billion funding for lending scheme, but many headline grabbing rates have been concentrated around people with larger deposits and have also come with significant fees.
A mortgage price war however has once again delivered the lowest ever two year fixed rate mortgage, as Tesco Bank stages an assault on established lenders.
The supermarket giant only launched in to the mortgage market in August, and offers loans-to-value (LTVs) at up to 80 per cent and already they have recently launched Britain’s cheapest mortgage, slashing its rates to as low as 1.99 per cent and effectively started a price war again in the mortgage market.
The new range of mortgages includes a market leading two year fixed rate deal at 1.99 per cent, which is down from its original 2.64 per cent, although borrowers do need a hefty 40 per cent deposit to take out the deal.
Although under the Tesco deal, and with the average property price of £163,376, buyers would have to find a £65,350 deposit.
Tesco has also dropped the rate on another a two-year fix from 2.79 per cent to 2.39 per cent for borrowers with a 30 per cent deposit and said it was able to make the rate cuts due to its plans to use a Government scheme aimed to kick start lending.
However, both the Tesco deals also carry fees of £995 and are available to customers who are remortgaging or buying a new home.
Rachel Springall, spokeswoman for comparison website Moneyfacts.co.uk, said the last time a similar fixed deal was offered at 1.99 per cent was around a year ago.
Last year, Leeds Building Society also offered a fixed rate of 1.99 per cent. However, its fee was £1,999.
Peter Gettins, of mortgage broker London & Country, said: “If you are looking for a mortgage this is an absolute cracker. Taking it out is a no brainer. Hopefully, other lenders will try to match it.”
According to recent data, the next cheapest two year fixed rate loan of its type is with Santander, at 2.39 per cent and a hefty £1,995 fee.
Benny Higgins, chief executive of Tesco Bank, said: “We are committed to responsible lending and hope to enable our customers to borrow a further £1 billion, over the next year, at affordable rates.”
Ever since the financial crisis and the retailer’s decision to buy the Tesco banking operation from Royal Bank of Scotland, Tesco has been seen as one of the main challengers set to break the banks’ high street monopoly.
However, some experts feel that Tesco has missed a trick here. If it had offered a mortgage tailored to first time buyers they could have distinguished themselves from the high street who on the whole do not entertain first time buyers.
Aaron Strutt, of brokers Trinity Financial, said: ‘It seems a shame Tesco isn’t using the Funding for Lending money to offer help to people who really need it – those with small deposits.’
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