Yorkshire Building Society launches sub-5% mortgage - are rates going down?

Competition among lenders to offer market-leading mortgage rates is hotting up, with the first sub-5% deal in months appearing this week.

Yorkshire Building Society (YBS) has introduced a five-year product fixed at 4.99%, while rival providers have also lowered their costs.

The reductions, however, could be short-lived as another Bank of England base rate increase is predicted for this Thursday.

Here, Which? takes a closer look at the new YBS deal and how mortgage rates have fluctuated over the past two months.

Yorkshire launches 4.99% mortgage deal

The building society has laid down the gauntlet to other lenders by being the first to offer a five-year fix below 5% since the start of the summer. 

Available to both purchasers and remortgagers, the new 4.99% deal requires a 25% deposit or equity. So, a borrower can be eligible if they've saved up 25% of the purchase price or own at least 25% of their home.

The product comes with an additional fee of £1,495. This mid-to-high fee can negate the savings made with the lower interest rate. Our recent news story, which revealed that six in 10 deals come with additional costs, delves into what impact four-figure fees can have on the overall cost of your mortgage. You can also use our mortgage repayment calculator to compare costs.

• Find out more: applying for a mortgage

Other lenders introduce price cuts

Over the past week, a host of other banks and building societies have reduced the interest rates on some of their mortgage products.

Coventry Building Society's new five-year fixed-rate deal charges 5% for those borrowing at a 60% loan-to-value (LTV) ratio or 5.03% for those with a 75% LTV The new YBS deal is slightly cheaper, although both of Coventry's deals come with a lower £999 fee.

Big-name providers such as Barclays, Halifax, Nationwide and Virgin Money have also lowered rates. In cutting the rates on some products by 0.1%, Barclays said last week that it was 'taking advantage of recent falls in the cost of market funds'.

YBS also mentioned the 'favourable market swap rates' as the key reason for the building society lowering its rates. 

As well as introducing the first sub-5% deal of the autumn, YBS has reduced rates across all LTV bands. The biggest cut, of up to 0.46 of a percentage point, has been applied to its 95% LTV products aimed at first-time buyers.

• Find out more: 95% mortgages explained

What's happening to mortgage rates?

The graph shows how the average rates for two-year and five-year fixes have changed since the start of July, according to Moneyfacts.

Will mortgage rates continue to fall?

For the coming weeks and months, it's hard to tell if rates will begin to drop more substantially or even increase again.

A further rise to the Bank of England base rate is expected this Thursday (21 September) - it's expected to rise to 5.5%. However, this isn't for certain, and opinion is split as to what the outcome will be.

Due to this, there is uncertainty as to whether lenders have factored another potential base rate rise into their recent mortgage rate pricing. 

After Thursday, we might begin to get a clearer picture of what direction rates will take. But even if the base rate doesn't rise, don't expect significant movement in mortgage rates. 

While we now have a 4.99% deal on the market, it's unlikely lenders will be offering any sub-4% deals in the near future.

• Find out more: Bank of England base rate and your mortgage

How to find the right mortgage deal

We've grown accustomed to low-interest rates over the past 15 years, so choosing the right deal in a high-interest environment can be difficult. 

If you're not sure how best to proceed, look for a whole-of-market mortgage broker, who will be able to find a suitable loan for your personal circumstances. 

If you're comparing deals yourself, keep an eye on the full cost, and not just the initial rate.

Take your time and shop around before settling. Some borrowers prefer to take out a loan with a bank they already have a current account with, but this can be a costly mistake if it doesn't offer competitive rates.

If you're coming up to remortgage, your existing lender will likely offer you exclusive rates in a bid to keep your custom. Our research last month showed which of the major lenders reward loyalty with cheaper rates.

However, don't feel pressured to stay with your current lender, as you can switch to a different provider and lock in a rate six months before your current term expires.

• Find out more: how to find the best mortgage deal