What’s the deal?
Yorkshire Building Society has cut the fixed rates on its hybrid tracker-to-fixed mortgages, which, for two years, charge a rate that moves in line with the Bank of England (BoE) base rate, and then switch borrowers to a pre-determined fixed rate in years three to five. As of this week, borrowers seeking up to 75 per cent of a property’s value will be offered an initial two-year tracker rate of BoE base plus 1.79 percentage points (currently 2.29 per cent), followed by a three-year fixed rate of 3.39 per cent. Previously, the fixed-rate period of the mortgage carried a rate of 3.79 per cent. Yorkshire has made similar reductions to the fixed rates on its 85 and 90 per cent loan to value mortgages.
Is this good?
It is one of only two switch-to-fix deals that specify their fixed rates in advance – the other is from Yorkshire’s broker arm, Accord – and, combined, the tracker and fixed rates are likely to work out cheaper than any five-year fixed-rate deal. Ray Boulger of broker John Charcol calculates that, if the BoE base rate stays at 0.5 for two years, Yorkshire’s hybrid rates are equivalent to a five year fixed rate of 2.91 per cent. BoE base would have to average 2.75 over the next two years for a five-year fix to work out cheaper.
What’s the catch?
If the BoE base rate remains at a very low level for five years, Yorkshire’s tracker-to-fixed deal may work out more expensive than longer-term tracker deals. For example, if the base rate remains at 0.5 per cent for the next two years and rises by less than 0.25 per cent in each of the next three, ING Direct’s lifetime tracker at base plus 2.3 percentage points could be cheaper. Also, if the base rate is cut to 0.25 per cent, borrowers with the Yorkshire mortgage will not benefit, as its tracker rate cannot fall below 2.29 per cent.
What are the alternatives? Switch-to-fix deals are offered by the Nationwide and Newcastle building societies, Royal Bank of Scotland, Barclays/Woolwich, Santander, Northern Rock and Scottish Widows – and allow borrowers on tracker or variable rates to move to a fixed rate without having to pay any redemption penalties. However, the fixed rate that borrowers can to switch to will depend on what their tracker rate mortgage provider is prepared to offer at the time.
How do I find out more?
www.ybs.co.uk/mortgages or 0845 1 200 200.