Tesco launches sub-2% mortgage rate

| October 24, 2012
Tesco launches sub-2% mortgage rate

Tesco Bank has launched a record-low mortgage deal, but only for those who can afford a deposit of at least 40 per cent of the value of the property, as well as a £995 fee.

The two-year deal offers a rate of just 1.99 per cent and is fixed until the end of 2014.

Tesco has used the government’s recently launched “Funding for Lending” initiative to launch the new rate, which is 0.65 per cent lower than its previous best fixed-rate mortgage.

The funding for lending scheme allows lenders to access funding at below market rates, on the understanding that this will be passed on as loans to businesses and families who wish to own their own home.

The scheme was expected to help first-time buyers who cannot get mortgages but while it has helped to reduce mortgage rates, first-time buyers are still locked out by the high deposits being demanded.

Tesco’s latest offering is more likely to appeal to people who are interested in remortgaging.

Tesco isn’t the only lender to have offered a rate of 1.99 per cent in recent months.

Leeds Building Society also offered a 1.99 per deal in 2011, but the fee, at £1,995 was double the fee for Tesco’s latest product.

Figures from the Council of Mortgage Lenders (CML) for September suggest that the Funding for Lending Scheme has had little impact on the housing market.

In fact mortgage lending fell by 10 per cent during the month, with £11.6 billion being lent to homebuyers, which is 15 per cent lower than a year ago.

CML chief economist Bob Pannell said: “The big question over the coming months will be the extent to which a greater availability of funds attracts greater demand, and in what parts of the market.”

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