State Bank of India's UK arm (SBI UK) has introduced a 3.9% interest rate on its two-year fixed buy-to-let mortgage, significantly undercutting the current market average of 6.48%, as reported by Moneyfacts. This announcement, made on Friday, has sent shockwaves through the buy-to-let mortgage market.
However, the deal comes with a substantial 5% product fee, which could make it less attractive for some investors. For example, a £200,000 loan would incur a £10,000 charge. Alternatives such as Virgin Money (LON:VM)'s 4.87% deal, with a smaller fee of £3,000, may result in overall lower costs despite the higher interest rate.
Nicholas Mendes, mortgage technical manager at broker John Charcol, said: "This is a shock rate announcement from the State Bank of India. At first I wasn't sure it was correct. No other lender has broken the 4.5% barrier, let alone 4%."
Despite the high fee, Mendes highlighted that SBI UK's deal has become a best buy overnight due to its unprecedented low rate. He also reassured potential borrowers about the credibility of SBI UK as a fully authorised and regulated UK bank.
On Thursday, Nationwide Building Society (LON:NBS) announced it is cutting its mortgage rates following the Bank of England's decision to hold the base rate at 5.25%. Nationwide now offers the cheapest five-year and 10-year fixed rate deals at 4.94%, and the cheapest two-year fix at 5.44% for home movers only.
The lender's decision to cut rates was welcomed by industry experts who anticipate more lenders to follow suit. Stephen Perkins, managing director at Norwich-based Yellow (OTC:YELLQ) Brick Mortgages, expressed confidence that more rate cuts are imminent, which could stimulate the property market.
Nationwide's rate reductions come as an estimated 800,000 fixed mortgage deals are set to end during the second half of this year, with a further 1.6 million due to remortgage next year. Many borrowers could see their rates jump from below 2% to over 5%.
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