Halifax launches 2019’s cheapest mortgage, but is it worth the risk?

Halifax launches 2019’s cheapest mortgage, but is it worth the risk?

Halifax has fired the first shot in a winter mortgage rate war by offering a new deal with an initial rate of just 0.98%.
New two-year tracker deal offers an initial rate of 0.98% for home movers

By Stephen Maunder for Which? 24 Nov 2019

It’s the first time in a year that a lender has broken the 1% barrier, but a word of warning for borrowers – it’s a bit of a gamble.
Here, we explain how Halifax’s new deal works, and offer advice on whether now is the time to gamble on a tracker mortgage.

Halifax launches sub-1% tracker mortgage

Home movers can now get a mortgage with a rate of just 0.98%.

The new tracker deal from Halifax is available to borrowers with a 40% deposit, and comes with an up-front fee of £999. It’s only available to people moving home, so first-time buyers and remortgagers will need to look elsewhere.

Mortgage deals with initial rates below 1% are very rare, with Halifax the first lender to take the plunge this year. Last year, Skipton Building Society and Yorkshire Building Society offered 0.99% deals, as did HSBC in the summer of 2017.

What’s happening to mortgage rates?

It’s been a good year for borrowers, with mortgage rates falling across the board.
And with lenders looking to get business over the line before the end of the year, don’t rule out prices dropping further.

Right now, the average rate on two-year fix and five-year fix is the lowest we’ve seen so far in 2019. Trackers, meanwhile, are priced just 0.01% more than when they hit their 12-month low in August.

How does the Halifax tracker work?

The vast majority of borrowers take out either a two or five-year fixed-rate mortgage, but this new deal from Halifax is a tracker. Data from Experian shows that just 3.1% of borrowers searched for a tracker in October, compared with the 91% who shopped for a fixed rate.

Tracker mortgages follow the Bank of England base rate plus a percentage, so if this goes up or down, so too will your monthly payment. The Halifax deal is priced at the base rate (currently 0.75%) plus 0.23% – a total of 0.98%.

If the Bank of England increases the base rate to 1%, you’ll pay 1.23%, or if it reduces it to 0.5%, you’ll only pay 0.73%.

Should I risk taking out a tracker?

With a tracker mortgage, you’re abandoning the security of a fixed-rate deal and gambling on what’s going to happen to interest rates.
You should only take out a tracker if you expect the base rate to fall or if the deal is significantly cheaper than the equivalent fixed rate.

Is the Bank of England base rate likely to fall?

You’ve got this far without us mentioning the ‘B’ word, but there’s no way around it – the base rate could depend on what happens with Brexit. With lower-than-expected GDP forecasts in place, there has been speculation that a drop could be on the way, though this hasn’t yet materialised.

Earlier this month, the Banks of England’s Monetary Policy Committee voted to keep the base rate at 0.75% by a majority of seven to two. This means three ‘no’ voters will need to change their mind if rates are to fall when the committee next meets on 19 December.

Right now that seems unlikely, but with an election to be fought in the interim, stranger things have happened.

Is this tracker cheaper than a fixed rate?

If the base rate falls, you could end up paying 0.73% – which makes this deal far cheaper than anything else on the market. If you don’t think the base rate will drop, however, it’s probably not worth choosing this product over a two-year fixed rate.

That’s because Halifax also offers a new market-leading rate of 1.05% on its equivalent fixed-rate deal, so you’ll only be saving 0.06% – or just a few pounds a month – by choosing the tracker. And while it’s unlikely, it’s not beyond the realms of possibility that the base rate could even increase next year, which would give you a far less competitive rate of 1.23%.

You can see how Halifax’s two deals compare below.

Type of deal              Initial rate          Revert rate         Fees

Two-year tracker        0.98%                     4.24%          £999

Two-year fix                1.05%                      4.24%          £1,499

* Source: Moneyfacts. 19 November 2019. *This deal is also available with a £999 fee, subject to a higher initial rate of 1.08%

How does Halifax rank for customer service?

In our annual mortgage satisfaction survey, Halifax ranked 10th out of 25 lenders, with a customer score of 69%.
The bank scored well on its application process and online statements, but achieved middling scores in everything else, such as overpayment rules and transparency of charges.

In 2019’s survey, three providers – Nationwide, Principality and Coventry Building Society – achieved Which? Recommended provider status.
How to find the best mortgage

1. Consider your future plans: the right deal for you isn’t necessarily the cheapest one. Before making your decision, think about how long you’ll be living in the property, your finances and your appetite for risk.

2. Look at the full cost of the deal: low initial rates are exciting, but keep an eye out for other fees. High up-front fees can wipe out the benefit of a cheap rate, while early repayment charges can scupper a good five-year deal. If you’re looking at a tracker, ensure it doesn’t come with a collar that will prevent the rate getting any lower even if the base rate falls.

3. See if saving more is worth your while: mortgages have been getting cheaper across the board, but if you can lower your loan-to-value (LTV), you could make significant savings. This is especially the case if you’ve got a small deposit, with the gap in initial rates between a 90% and 95% mortgage as much as 0.7-1%.

4. If in doubt, don’t gamble: in this time of economic uncertainty, a tracker might sound tempting, but it’s still a risk. If you run a tight monthly budget and like the security of a guaranteed fixed payment each month, then it’s best to play it safe and choose a fixed-rate deal.

5. Take advice from a mortgage broker: if you don’t know where to start, a whole-of-market mortgage broker can do the hard work for you and find you a suitable mortgage. A good broker should also be able to access intermediary-only deals, which could help you save money and get a better rate.