Family Gifted Deposit Mortgage – Are they available?Anyone with any interest in the mortgage markets will know that interest rates have continued to drop in recent times. The latest deal hit the headlines recently though, and it is easy to see why.

Chelsea Building Society has unveiled their latest offer for a mortgage with an interest rate that goes just below the ‘magic’ 1% mark – the first of its kind. The deal offers an interest rate of just 0.98%, yet there are conditions that must be met for the tracker mortgage rate to be offered to interested applicants.

Large deposit required

Details of the mortgage have revealed anyone wishing to apply needs to have a deposit of at least 35% – essentially a third of the purchase price of the property – in order to be considered. Furthermore anyone accepted for the mortgage will be required to pay a fee of £1,675. Fees are quite common in the mortgage market but they can vary significantly between providers. Generally speaking the lower the interest rate is, the higher the potential fee can be.

The tracker mortgage is available for a two-year period. It tracks the Bank Rate and adds on an additional percentage to create the interest rate. At present the Bank Rate is 0.5%. The building society will then add 0.48% to that rate throughout the two years. Therefore any changes in the Bank Rate will be reflected in a change in the interest rate applied to the mortgage.

What happens at the end of the two-year period?

Tracker mortgages can provide some good deals if you can buy into one like this. However it is important to consider which rate would apply to the mortgage if you didn’t look for a better deal once it ends. In this case the Chelsea Building Society will move onto a ‘follow-on’ rate. This stands at 5.45% at the moment.

As such there could be a good offer here for the two-year period, but borrowers should be ready to move mortgages at the end of the two years. Some people should therefore consider whether they would be better with a mortgage product that lasted for a longer period of time and secured a fixed low rate for the entire period.

Is this competition between providers good news for would-be borrowers?

Yes it could be, although it is still important to compare mortgages and providers to see which deal will be best. Furthermore it is not enough to compare the interest rates, since fees can also have an effect on the total amount a person will pay for their mortgage over the space of a year or two. By spending time crunching some numbers it is easier to spot the best deal for your needs on the market today.

Clearly it is also wise to know how much you can offer by way of a deposit. Some borrowers will find the hefty 35% deposit required here to be well out of their reach.

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