Five-year fixes finally fall

Five-year fixed rates have today fallen back below 4 per cent, a move that could see more borrowers fixing their mortgage as a result.

Chelsea Building Society will launch a 3.99 per cent five-year deal on Tuesday, available up to 75 per cent loan-to-value.

This is 20 basis points cheaper than the current best buy five-year fix available in the market: 4.19 per cent from Yorkshire Building Society (Chelsea’s new parent company).

However, there is a downside: the sub-4 per cent rate comes with a hefty fee of £1,995.

Melanie Bien of Private Finance, the mortgage broker, says in spite of the high fee, Chelsea’s deal will look attractive to many borrowers - with the 3 at the start of the rate having an important “psychological effect”.

While five-year fixes were available at sub-4 per cent towards the end of last year, since the beginning of 2011 they have been moving upwards, making them less attractive to borrowers.

But with five-year swap rates falling by around 0.4 per cent over the past month, mortgage brokers believe more lenders could launch deals at below 4 per cent.

As with all mortgage deals, homebuyers should consider the total cost of a mortgage - rate plus fees - when comparing products.

As a general rule of thumb, the bigger the mortgage you take out, the more important the rate is rather than the size of the fee. Chelsea’s maximum loan size is £1m, although it will consider lending more on a case-by-case basis.

For those with a smaller mortgage, Chelsea has also launched a five-year fix at 4.39 per cent with a smaller fee of £595.

The building society claims that its 3.99 per cent deal works out the most cost effective for those borrowing £104,500 or more.