Tesco Bank has cut the rate on its two-year fixed rate mortgage to just 1.99 per cent for borrowers with a 40 per cent deposit.
The product has been reduced from a rate of 2.64 per cent. The fee has been lowered from £1,100 to £800. With a booking fee, the total fees are £995.
For borrowers with a 30 per cent deposit the rate is 2.39 per cent with the same amount of fees. This rate has been reduced by 0.40 per cent from 2.79 per cent.
Consumers hope this will spark a price war amongst lenders. The 1.99 rate is the first time the mortgage market has seen a rate below two per cent for 12 months.
Tesco says it is able to offer the low rates because of the government and the Bank of England’s Funding for Lending Scheme (FLS).
Tesco Clubcard members will receive one point for every £4 they pay in mortgage repayments.
Benny Higgins, Chief Executive of Tesco Bank, said: “We welcome the Funding for Lending Scheme, and are delighted to be able to pass on the benefit to our customers.
“We are committed to responsible lending and hope to enable our customers to borrow a further £1Bn, over the next year, at affordable rates.
However, the FLS was designed to increase the availability of affordable mortgages for first-time buyers and this is another example of the benefits of the cheaper lending that the scheme allows being reserved for homeowners with lots of equity.
Tesco Bank only entered the mortgage market in August and at present only offers mortgages to homeowners with at least 20 per cent equity on their current property or first-time buyers with a deposit of at least 20 per cent.
Rachel Springall, spokeswoman for Moneyfacts, said “The new two-year fixed deal from Tesco Bank will become the market leader at 1.99% with a £995 fee and will require a 40% deposit. In addition the two-year 2.39% deal with a £995 fee will be the lowest rate for 30% deposits.”