Mortgage rates hit record low as 0.89% product launched

A 'record low' 0.89% mortgage rate has been launched, as a price war between lenders has seen the cost of borrowing fall to its lowest point in nearly 30 years.

Financial experts say the deal, which allows prospective homeowners to borrow money for a two-year period on a 0.89% standard variable rate (SVR) mortgage, represents the lowest mortgage rate since records began in 1988.

There are a couple of catches though and that is that borrowers will have to pay out a product fee of £1,495 to secure the rate - which is being offered by Yorkshire Building Society - and have a deposit of at least 35%.

Alternatively the building society are giving borrowers the option to pay a lower fee of £995 and have a higher mortgage rate of 1.05%.

The details

The new 0.89% mortgage represents a discount of 3.85% for the first two years of the building society's SVR product but borrowers should be aware that as it is variable the rate could go down but also up if the company increases its SVR.

James Farrow, a senior mortgage manager at Yorkshire Building Society, said the company the company had decided to offer the low interest mortgage after seeing the cost of funding falling.

He said: "The cost of funding has fallen in recent weeks and as a financially strong building society with no external shareholders to satisfy, we have the ability to pass this on to borrowers."

Rachel Springall, a finance expert at Moneyfacts, said borrowers looking for more flexibility over the shorter term may prefer a discounted variable deal, while those looking for some security may want to opt for a fixed rate.

She said: "In such a low interest rate environment it would be ideal for borrowers to consider overpaying their mortgage.

"As with any option, borrowers would be wise to weigh up the entire package before entering any arrangement."