One year fixed rate mortgage? No thanks

December 4, 2009 12:40 pm by Tanya Powley

Want to fix your mortgage rate for three or five years? Maybe. Want to fix your mortgage rate for one year just at the time interest rates are expected to start rising from an all time low of 0.50 per cent? No thanks!

Leeds Building Society launched a one year fixed rate yesterday with a rate of 2.99 per cent available for clients with a loan to value of up to 65 per cent. Admittedly it comes with a low arrangement fee of £199 but the deal – which Leeds BS says is likely to be “extremely popular” – will not be attractive for most home movers or buyers out there.

Leeds BS says the product provides an “excellent combination” of fixed and tracker rate features. The rate reverts to bank base rate plus 2.99 per cent – currently 3.49 per cent - for the second year.

But as Ray Bougler of John Charcol points out, interest rates are expected to stay low for the next year and start rising after that. With this product, you would be coming off the fixed part of the mortgage just as interest rates are rising!

A product that offers a one year tracker followed by a fixed-rate element would be the more attractive option at this point in time.

With two year trackers and lifetime trackers available from as low as 1.99 per cent then I doubt very much that Leeds BS will find this product flying off their shelves…

Posted in Mortgages |
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Lucy Warwick-Ching is the FT’s new Money Online Editor and has been a UK Companies reporter covering tobacco, pubs and leisure companies as well as the deputy editor on House and Home.

Matthew Vincent is the FT’s Personal Finance Editor and was previously the editor of Investors Chronicle, where he also devised the award-winning online video The Market Programme, and produced the BBC-FT standalone magazine ‘How to be Better Off’. He presents the weekly FT Money Show audio podcast, and previously worked on the BBC TV programmes Short Change and Pound for Pound.

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Josephine Cumbo has written about all aspects of personal finance but currently specialises in insurance. She also covered company news for FT.com. Prior to working at the FT she was a news reporter for the ABC.

Tanya Powley is a personal finance reporter on FT Money specialising in mortgages and the housing market. Tanya joined FT Money in November 2009 after working in Australia covering personal finance for the Australian Financial Review and its sister magazine Asset. Prior to that, Tanya wrote about mortgages for UK trade newspaper Money Marketing.

Jonathan Eley is editor of Investors Chronicle, and has been with the title for ten years. Before that he worked for newswires and trade journals in London, New York and Hong Kong.

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