Borrowers could get a mortgage charging interest of less than 1 per cent from next week, marking the lowest rate available since before the pandemic.
Hinckley & Rugby Building Society is planning to launch a new mortgage with an interest rate of 0.99 per cent, according to a communication sent to brokers.
However, not all borrowers will be able to take advantage as the criteria look set to be fairly strict - and home owners should beware the fact the rate isn't fixed.
A new mortgage set to launch next week would see buyers pay interest of just 0.99%
It will only be available to those looking to remortgage, rather than buy a new home - and they will need to have a deposit of at least 40 per cent in order to apply.
The building society is set to launch the new rate on 23 April, according to reports.
It is a two-year discount variable rate and the minimum mortgage amount is set to be £150,000.
Because it is a discount mortgage the interest rate could change at any time without the Bank of England shifting rates, if the building society raises the standard variable rate the loan follows.
A discount mortgage is set at a certain amount below the lender's standard variable rate for the duration of the fixed term - in this case two years.
The lender is free to change their standard variable rate whenever they like, so the amount borrowers pay could increase.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said that any change in Hinckley & Rugby's SVR would probably be an increase rather than a decrease.
'Sub-1 per cent is a psychologically important barrier and will attract homeowners with a large amount of equity,' he said.
'However, with base rate at 0.1 per cent and highly unlikely to fall any further, the only way for the pay rate to go is up.
'The question is when this will happen and it's highly unlikely to be anytime soon because the economy is in such a precarious state with the full fallout from the pandemic not yet felt.'
|Lender||Standard variable rate (as of 11 March)||Rate change since base rate cuts|
|Bank of Ireland UK||4.09%||-0.15%|
|Yorkshire Building Society||4.49%||-0.50%|
If the Bank of England was to change its base rate, this may prompt mortgage lenders to change their SVRs - but if it is cut they do not have to pass this saving on to customers, although when it rises they often do.
'Make sure you check the terms of the deal'
Alex Winn, mortgage expert at Habito, says customers should always check the terms of low-interest mortgage deals to make sure they are actually saving money in the long run.
'Customers need to look in-depth at the specific terms of the deal, to see if it is worth it for them,' he says.
'I would recommend comparing the overall rate of the product over its lifetime (APRC) and see if this would be cheaper in the long run, compared to others out there.
'It's also worth knowing that many building societies have particularly high standard variable rates - the rate you're moved to when out of initial term, of between 5.5 - 6 per cent, as well as expensive early repayment charges should you need to exit your deal sooner than planned.'
Interest rates could go up in the long run
At the beginning of the pandemic, the base rate was cut from 0.75 per cent to 0.25 per cent, before being cut to 0.1 per cent where it still remains.
At the moment, fixed mortgage rates are by far the most popular products on the market.
These give borrowers security about what their payments will be for the duration of a fixed term, and are currently available at fairly attractive rates.
For example, a borrower with a 40 per cent deposit could currently get a two-year fixed rate of 1.06 per cent with Platform, if they paid a £1,249 fee, or a two-year fixed rate of 1.37 per cent with Halifax, with no fees.
The property industry reacted positively to the news of the new deal.
Dominic Agace, chief executive of estate agent Winkworth, said: 'This is an encouraging sign for the market, demonstrating that banks believe in the recovery and are keen to capture new business.
'It's also great news for borrowers looking to make their next move. These initiatives by banks will help maintain the market momentum in the future.'
Others pointed out that the deal would not apply to many borrowers.
'Clearly Hinckley and Rugby are going for an attention-grabbing headline rate but they will know given the strings attached not many customers will qualify and as they are a fairly smallish lender that makes sense for them,' said Angus Stewart, chief executive of Property Master.
'Overall, though this is symbolic of a dynamic market working to keep up with the demand at the moment in the housing market and that is good news for everyone.'