Cheapest ever mortgage rate of 0.89% on offer to home buyers

A building society is launching Britain's cheapest ever mortgage deal with a rate of 0.89% as competition between lenders intensifies.

The two-year deal offered by Yorkshire Building Society requires a deposit worth at least 35% of the value of the property. There is also a product fee of £1,495.

The deal is not fixed at 0.89% but set at a 3.85% discount to the lender's standard variable rate (SVR) of 4.74% - meaning it can go up or down if the SVR changes.

It beats the 0.99% deal launched by the same lender earlier this year.

A £349,000 mortgage payable over 26 years would cost an initial £1,253.02 over the two-year period before going up to £1,889.13 under the SVR.

James Farrow, senior mortgage manager at Yorkshire Building Society, said: "The cost of funding has fallen in recent weeks and as a financially strong building society with no external shareholders to satisfy, we have the ability to pass this on to borrowers."

Rachel Springall, a finance expert at Moneyfacts, said borrowers looking for more flexibility over the shorter term may prefer a discounted variable deal, while those looking for some security may want to opt for a fixed rate.

Moneyfacts said the 0.89% rate was the lowest on its records going back to 1988.

It comes as figures from Halifax showed Britons' expectations for house prices for the coming year remain subdued following the Brexit vote.

More than half expect prices to rise but most see an increase of less than 5%. Halifax's measure of annual house price growth has more than halved over the past 12 months.

Figures on Thursday from the Council of Mortgage Lenders (CML) showed gross mortgage lending in March fell 19% compared to last year to £21.4bn.

The steep drop was in line with expectations as the figures compared to a period in 2016 when buyers were racing to complete purchases ahead of an April rise in stamp duties.