Co-op offers record low two-year mortgage fix

The Co-operative Bank has fired the latest salvo in the mortgage wars with a record low two-year fixed rate mortgage at 1.09 per cent.

The deal follows last week's record low from HSBC, which offered the first five-year mortgage fix below 2 per cent, and rate cuts from Halifax and Lloyds.

The Co-op loan - reduced from 1.24 per cent - may be the cheapest two-year fix on the market but its terms are relatively onerous: it is only available to borrowers with a deposit of at least 40 per cent and carries an arrangement fee of £1,499.

David Hollingworth, director at broker London & Country Mortgages, said the "astonishingly low rate" underlined the highly competitive climate in current mortgage deals. "Standing out from the competition is increasingly difficult, which is great news for borrowers as rates sharpen."

The need for providers to keep up with rivals, chasing volume by reducing rates, was borne out this week as Barclays followed HSBC with a five-year fix at 1.99 per cent. Barclays also announced it was relaunching its Family Springboard mortgage from May 6, which helps first time buyers by reducing interest rates gradually over the first three years of the term.

Coventry Building Society launched its lowest five-year fixed rate mortgage at 2.19 per cent, with a £999 fee and minimum deposit of 35 per cent.

Some brokers said the election had slowed the market, sowing doubt among buyers and leaving providers needing to make up lost ground to achieve their lending targets. Mark Harris, chief executive of broker SPF Private Clients, said "it could only be a matter of time" before a provider came out with a two-year fix below 1 per cent.

'However, most borrowers are opting for five-year fixes for medium-term certainty, rather than two-year deals," he said. "Given that five-year money is not that much more expensive than two year, this may continue to be the case, even with this rock-bottom rate."

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