Nationwide Building Society has become the latest lender to offer mortgages with 5 per cent deposits, and is offering the lowest interest rate yet.
It is the largest bank or building society to bring back a 5 per cent product, and the is doing so at the lowest rate available, 3.49 per cent.
Nationwide is also offering a two-year fix at 3.69 per cent with a £999 fee and 3.84 per cent with no fee.
Nationwide has launched a five per cent deposit mortgage with a market-leading rate
On a five-year fix it is offering a rate of 3.79 per cent with a £1,499 fee, 3.89 per cent with a £999 fee and 3.99 per cent with no fee. The mortgages will launch on Thursday.
As with all of Nationwide’s mortgages, first-time buyers will get £500 cashback when they complete.
The mortgages are available to both first-time buyers and home movers, but they come with some added restrictions.
Self-employed borrowers are not eligible for the loans, and they are only available to buyers purchasing a house, not a flat. New-build properties are also excluded.
The headline 3.49 per cent rate beats the current lowest rate of 3.61 per cent available with Platform, though the Nationwide product has a £1,499 fee and the Platform product £1,249.
For a buyer purchasing a £200,000 home, monthly payments on the two would be roughly comparable with Nationwide coming in at £950 and Platform £962.
A zero-fee deal with a higher interest rate could offer better value, depending on the value of your property.
You can compare rates and fees and find the best deal using the This is Money mortgage calculator.
More choice for first-time buyers
Lenders have poured back into the low-deposit mortgage market in recent weeks, following a cull at the start of the pandemic.
This is partly because the Government promised to underwrite five per cent deals under a new guarantee scheme – however, Nationwide’s new mortgages have been launched independently of that scheme.
Earlier this year, the lender launched a new 90 per cent mortgage, as well as allowing first-time buyers the option to borrow 5.5 times their income instead of the usual 4.5 times.
Henry Jordan, director of mortgages at Nationwide, said: ‘Deposits and affordability are two of the major issues currently facing first-time buyers, making it harder than ever for them to get their first home.
‘As the UK’s biggest building society and second largest lender, supporting people into their first home is at the heart of what we do.
‘As one of the leading lenders to first-time buyers, we feel confident returning to the 95 per cent LTV market without the need for the mortgage guarantee scheme.
‘By not being part of the scheme, we can provide improved value to our members and this is demonstrated by the market-leading rates we’re announcing today.’
Borrowers with 5 per cent deposits now have more than 100 mortgages to choose from, as the mortgage market bounces back.
At the start of May there were 112 different 95 per cent mortgages on the market, more than three times as many as there were the previous month, according to analysis by Moneyfacts.
Lloyds, Santander, Barclays, HSBC and NatWest are all offering the loans, while Virgin Money is set to begin offering them this month.
However, brokers are warning that those who take advantage need an impeccable credit rating, and many of the mortgages are not available to new-build buyers.
Option to track the base rate – but is it wise?
Should I take a tracker rate?
Tracker rates are essentially a gamble. What looks like a bargain rate now could soon get very expensive when and if interest rates rise.
Anyone considering a tracker needs to make sure they are not just storing up a problem for the future.
If the tracker comes with an early redemption penalty that would make it expensive to jump ship, then make sure your finances could take a rise of at least 2 per cent to 3 per cent in interest rates.
For that reason we at This is Money like tracker deals that fit into one of these three categories: no early redemption penalties, a cap to how high the rate will go, or that let you jump ship for a fixed rate if rates rise.
As well as two and five-year fixed rates, Nationwide is offering a tracker rate – one of only two lenders to do so along with Santander.
A tracker rate is pegged to a certain percentage above the Bank of England’s base rate, which means borrowers’ monthly payments will increase if the base rate does.
Borrowers who take a tracker mortgage usually do so because they believe the base rate will fall or stay the same.
The base rate is currently at a historic low and is unlikely to fall any further, although some predict it may remain at 0.1 per cent for a few years.
However, it is much more likely to rise than it is to fall, so tracking it could be a risky move.
The other reason borrowers typically take out a tracker mortgage is flexibility, as these deals often do not have the same punitive early repayment charges as fixed products if they want to overpay or leave the mortgage before the end of the initial deal period.
This is generally more of a concern for those further up the housing ladder who might decide to overpay in order to clear their mortgage quicker, for example.
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