Now for the under 1% mortgage deal

MORTGAGE rates could plunge below 1 per cent for the first time, the boss of one of Britain’s biggest lenders said yesterday.

Chris Pilling, chief executive of Yorkshire Building Society, said a price war would make it cheaper than ever to pay off a home loan.

He said two-year fixed-rate mortgages – the most popular type of deal – could dip below 1 per cent this year.

The fall would shave around £130 off the annual mortgage bill for a family with a £150,000 loan.

The record low for a two-year fixed mortgage rate is 1.05 per cent, which was offered by the Post Office in August last year.

‘If we go as low as that again, you can’t say no to anything... and competition [between mortgage lenders] has been significantly stronger in recent months,’ Mr Pilling said.

Mortgage rates have tumbled steadily since hitting a ten-year high in June 2008 as the financial crisis began. Back then, two-year fixed deals cost 6.75 per cent on average – meaning a bill of £1,036 a month on a £150,000 mortgage.

By contrast, if rates fall to 0.99 per cent in the next few months, the same loan would cost £564 a month in repayments.

The latest mortgage price war was triggered this week when the Bank of England shelved plans to raise interest rates.

Mark Carney, governor of the Bank of England, said base rate could even be cut to below 0.5 per cent, where it has frozen since March 2009, if the global economic jitters hit Britain.

He told MPs that Britain could follow the example of Sweden, Switzerland and Japan in cutting rates ‘towards zero’.

Experts said lenders had reacted to the news by putting in place plans to slash their rates. David Hollingworth, of broker London & Country, said: ‘There could be a scramble to push rates down.

‘It’s great news for borrowers and many will be able to cut their costs to new lows.’

Last week, Yorkshire Building Society cut its two-year fixed mortgage rate to 1.14 per cent.

This is currently the cheapest two-year deal on the market, followed by First Direct, which charges 1.15 per cent.

Five-year fixed-rate mortgages have already edged below the 2 per cent mark, with HSBC launching a 1.99 per cent deal last month.

And even ten-year fixed rate deals have crashed to new lows. First Direct, part of HSBC, now charges 2.89 per cent to fix a home loan for a decade.

Mr Hollingworth said: ‘These are staggeringly low rates – anything below 3 per cent looks incredibly cheap over such a long time-frame.’

Mr Pilling said that although borrowers should benefit, savers face could face more pain.

‘This is a really tough time for savers, because savings rates are really low,’ he added.

According to rate monitoring website Savings Champion, there have been 4,000 cuts to savings rates over the past four years – and it could get worse. Around £160billion is languishing in accounts paying less than 0.5 per cent.

Anna Bowes, director of website Savings Champion, said: ‘Savers have been hammered and they’re continuing to be hammered. It’s not looking good.

‘ The banks have already cut saving rates to the bone and if the interest rate falls any further they could use it as an excuse to cut further.’

Mortgage rates were already thought to have reached rock-bottom. Last summer, homeowners were urged to remortgage ahead of an expected rise in January this year. Policymakers at the Bank of England warned they would act in the ‘not too distant future’.

But the Bank now fears that the British economy is too exposed to the plummeting oil prices and chaos in the stock market.

Banks and building societies are now offering more mortgage deals than at any point since the financial crisis.

According to the Mortgage Advice Bureau, another broker, there were more than 17,000 different deals available in January – the highest level seen since 2008.

‘It’s not looking good for savers’