12:31 14 March 2013
Chelsea Building Society is the latest lender to up its game, following the launch of a two-year fixed rate mortgage at a new all-time low of 1.74%.
The move means it now stands at the top of the best buy tables in this camp, having knocked HSBC's two-year offering of 1.79% down a notch. So let's take a closer look.
What's the deal?
Chelsea Building Society has launched a two-year fixed rate mortgage priced at 1.74%. It is now the cheapest mortgage of its kind in history.
The deal (which is available on borrowing of up to £5million) requires a deposit of 40% and you will also have to fork out £1,695 for the fee.
Chelsea's deal now beats HSBC's two-year fix at 1.79% with a £1,999 fee. HSBC shares this number two position with Yorkshire Building Society which has just launched a two-year fix also priced at 1.79%, but only in terms of rate as the Yorkshire charges a lower fee of £1,345.
Who's it good for?
Chelsea's deal is fantastic for those who have significant equity in their property, or a large deposit, who want to fix their mortgage repayments for two years at a record low rate of 1.74%.
However, as the fee is so high, it makes sense for people borrowing larger amounts as the lower rate will be of most benefit to them.
The first catch with Chelsea Building Society's mortgage is the 40% deposit that's required. Many people simply won't be able scrape together a deposit of this size or have sufficient equity in their home. And if they can afford the hefty deposit, finding a further £1,695 for the fee could prevent a number of other borrowers from applying for this deal.
As mentioned above, while Chelsea's 1.74% rate is extremely tempting, it's worth bearing in mind that it can sometimes work out cheaper to opt for a mortgage with a higher interest rate and lower fee.
For example, if you borrowed £160,000 with Chelsea, you would pay £17,489 in total, including the fee, over the two-year period. Yet if you borrowed the same amount with Norwich & Peterborough Building Society's two-year fixed rate deal at 1.99% with a £995 fee, you'd pay a total of £17,252 over the two-year term.
That's £237 less even though the rate is higher.
In fact, the Norwich & Peterborough mortgage remains the cheapest option if you are borrowing anything less than £250,000. Those borrowing £250,000 would pay £26,373 with Chelsea over two years but £24 more (£26,397) with Norwich & Peterborough. So it pays to do your sums.
If you're unsure which mortgage is right for you, contact our mortgage partner London & Country for free, independent advice on 0844 209 8725.
Also watch out for the 3% early repayment charge that you'll have to cough up if you need to get out of Chelsea's mortgage before the two years are up.
What's the verdict?
Chelsea Building Society's two-year fix at 1.74% will be attractive to anyone looking to remortgage or buy their first home, providing they can afford the hefty deposit and arrangement fee.
But while it's now the lowest rate on record, don't forget that, depending on how much you need to borrow, there may be a cheaper option out there for you.
Alternatively, if you would prefer to fix your mortgage repayments for longer than two years, five-year fixed rate deals are also at record low levels.
For example, if you have a 40% deposit, Yorkshire Building Society's five-year fixed rate mortgage is priced at 2.64% and has a £1,495 fee.
If you have a slightly smaller deposit of 35%, First Direct offers a five-year fix at 2.69% with a £1,999 fee.
The most competitive mortgages are still reserved for those with a large deposit. But even if you can only save up a deposit of 10%, you can still get access to some competitive deals. Take a look at our mortgage channel to find out more.
You can boost your chances of being accepted for a mortgage further by ensuring your credit rating is up to scratch. It's easy to get hold of your credit report from one of the credit reference agencies which you can compare at our credit reporting channel.
If your credit report is not as good as it could be, read Jessica Bown's article for tips on how to improve it.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.