Yorkshire Building Society launch 0.89% mortgage

21 April 2017   By Samantha Smith

YORKSHIRE Building Society have launched a mortgage with a rate of 0.89%, which the lender claim is the "lowest interest rate ever available in the UK".

ybs branch
Source: Yorkshire Building Society

The launch comes at a time when the property market is beginning to slow down relative to previous rapid climbs, with prices rising in the first three months of the year at a rate of "only" 3.8% compared to 2016.

In other words, Yorkshire's move suggests that banks are starting to market their mortgages more aggressively, so that customers may be enticed into overcoming a predicted "slump" in sales.

Yet as attractive as a 0.89% interest rate is, it comes with a number of conditions, not the least of which is the need to pay a product fee of £1,495.

First- and second-time buyers

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This is fairly hefty compared to other mortgages currently on the market, while the deposit needed by customers who want to take up Yorkshire's offer - 35% - would suggest that it's geared more towards second- or third-time buyers than the "typical" first-time house hunter.

This would make sense, insofar as the increase in stamp duty to 3% in April 2016 has resulted in a taming of the buy-to-let and second-home market, suggesting the need to introduce such attractive draws as a 0.89% interest rate.

Conversely, there's been an increase in the number of first-time buyers. Perhaps spurred on by the kind of 95% mortgages offered by the likes of Lloyds and NatWest, 342,000 of them bought a house in the year to March 2017, the biggest tally in the past nine years.

This highlights how Yorkshire's attractively marketed new mortgage is perhaps focused more on people who aren't first-time buyers, and who are liable to be adversely affected by the stamp duty rise.

A brief comparison

However, while the new mortgage offers a rate of 0.89%, this lasts for only two years, at which point holders are put on Yorkshire's standard variable rate (SVR), which is 4.74%.

This could make it relatively expensive, with the representative example Yorkshire offer outlining the following costs for a 26-year mortgage:

Amount borrowed Monthly repayments for first two years at 0.89% Monthly repayments after first two years at 4.74% Total interest payable Product fee Total amount payable (inc. valuation fee of £450)
£349,000£1,253.02£1,889.13 £225,141.92 £1,495 £576,086.92

Given that legal fees would also have to be added to this equation, buyers could end up paying a hefty price tag for their home, which is why they'd perhaps be better off shopping around before committing to anything.

For example, Barclays are currently offering a two-year fixed mortgage at 1.23% with a minimum 25% deposit. After the two years the rate rises to 3.74%, which means that for a £349,000 mortgage, the borrower would pay the following:

Amount borrowed Monthly repayments for first two years at 1.23% Monthly repayments after first two years at 3.74% Total interest payable Product fee Total amount payable (inc. valuation fee of £450)
£349,000 £1,307.54 £1,692.54 £169,832.48 £1,499 £520,781.48

In this example, the borrower pays considerably less interest over 26 years, making the Barclays mortgage cheaper overall.

That said, despite the possibility that there are in fact more generous deals out there, Yorkshire nonetheless remain confident about their new mortgage.

Their Senior Mortgage Manager, James Farrow, said, "We are very pleased to offer borrowers the lowest mortgage rate ever available. The cost of funding has fallen in recent weeks and as a financially strong building society with no external shareholders to satisfy we have the ability to pass this on to borrowers".

Of course, borrowers just shouldn't forget to shop around before accepting anything a lender wants to pass onto them.

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