Why record low mortgage deal from Yorkshire Building Society isn't as good as it looks

Yorkshire Building Society made quite a noise with its “record low” mortgage deal.

The eye catching two year discounted product is priced at a rock bottom 0.89 per cent, defying some recent predictions that the era of ultra-cheap mortgages could be coming to an end.

Moneyfacts has verified the claim that it is indeed an all time low rate for a new mortgage deal. Its records go back as far as 1988, but given the history of Bank of England base rates (they are at historic lows) it is fair to say that the chances of anyone being able to unearth an even better deal from before that time are non existent.

However, as ever when it comes to financial services products, you need to look carefully at the small print and put the deal in context. If you do that, it becomes clear that it isn’t quite as good as it looks.

For a start, it only works for those who are willing to take the risk of a short term discounted deal over the security provided by a longer term fixed rate.

Secondly, to get the deal you’ll have to have a thumping deposit. It is only available for those seeking to borrow no more than 65 per cent of the value of the properties that they are purchasing.

The 0.89 per cent rate is a discount of 3.85 per cent off Yorkshire’s standard variable mortgage rate (SVR) of 4.74 per cent. And it will rise in line with the SVR if the latter increases. So you might not be paying 0.89 per cent for very long.

Oh, and borrowers will also have to pay a product fee of £1,495 up front.

I’d imagine, too, that their credit ratings will have to be whiter than white to qualify for the deal.

And after two years are up, they will either have to re-mortgage or put up with paying that SVR, whatever it stands at.

Don't get me wrong, it is still a good deal.

But another reason why we shouldn't be cheering too loudly is that it will be of benefit only those who are already in a fortunate position. The rich, in other words, get richer.

What it won’t do is help those at the sharp end of the market; the first time buyers who typically need to borrow much more than 65 per cent of the value of the properties they are purchasing.

They tend to struggle to find deals that enable them to afford the prices in Britain’s over heated housing market.

As Moneyfacts notes: “Whilst Yorkshire Building Society’s new deal has launched into the market as the lowest on record, this deal only appeals to those with a sizeable deposit, yet again leaving first-time buyers falling by the wayside.

“Whilst the competition is high in the mortgage market, sadly many lenders focus is too often on the lower loan-to-values. Which is a blow to those who are often consider the life blood of the mortgage market”

So, really, it’s one and a half cheers for Yorkshire Building Society. It’s nice to see a smaller player like the society sticking it to the big guns, the banks for example. But that’s about as far as it goes.

There’s a final piece of sage advice from Moneyfacts if you fancy taking the plunge on a deal like this. It points out that they aren’t often available for very long.

Borrowers would therefore "be wise to get everything in place to put them in the best position possible”. Tighter regulations on lending since the financial crisis have increased the amount of paper work by orders of magnitude. You’d best have it all ready and be prepared in advance so you can strike while the iron’s hot.