First mortgage below 1 per cent goes on offer: Battle intensifies after firm offers loan to borrowers who have 35 per cent deposit

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Chelsea Building Society reveals a 0.98% interest rate on home loans
Borrowers have to have a minimum 35% deposit and must pay a £1,675 fee
Financial experts say this is first time tracker mortgage has been offered below 1%

By Louise Eccles Business Correspondent For The Daily Mail

Published: 18:56 EST, 4 June 2015 | Updated: 04:24 EST, 5 June 2015

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Britain's mortgage wars intensified today after a lender announced a tracker mortgage below 1 per cent.

Chelsea Building Society revealed a 0.98 per cent interest rate on home loans for borrowers who have a minimum 35 per cent deposit.

Financial experts said they believed this was the first time that tracker mortgages had been offered at below 1 per cent.

Britain's mortgage wars intensified today after a lender announced a tracker mortgage below 1 per cent

The two-year deal offers a 0.48 per cent interest rate above the current base rate of 0.5 per cent, and includes a £1,545 product fee and £130 mortgage application processing fee.

Once the two years are up, the mortgage converts to standard variable rate for the remaining term of the mortgage, currently 5.45 per cent. Its SVR was reduced to this rate from 5.65 per cent on 30 November 2014.

The 0.98 per cent rate compares with the next best tracker rate of 1.08 per cent, with a £1,995 fee, from the Post Office for borrowers with a 40 per cent deposit.

Chelsea's announcement will ramp up the competition between lenders competing aggressively for business as the economy continues to recover.

The move sparked predictions from industry experts that Britain could soon see the first two-year fixed rate below 1 per cent.

The lowest fixed rate to date has been a two-year deal by Yorkshire Building Society at 1.07 per cent, launched last month.

The deal offers a 0.48 per cent interest rate above the current base rate of 0.5 per cent, and includes a £1,545 fee

Five-year fixed rates have also plummeted, with the first five-year deal below 2 per cent unveiled last month by HSBC in a move experts branded a 'watershed moment' for the industry.

Rachel Springall, of Moneyfacts.co.uk, said: 'Breaking the 1 per cent barrier is sure to grab the attention of borrowers looking for a competitive rate on their mortgage.

'We believe this is the lowest tracker ever, and suggests there is a potential that fixed rates could also drop below the 1 per cent mark. The banks are continuing to undercut each other and it shows no sign of slowing.

'I think the price war could continue for the next few months, if not the next year.'

Economists predict the Bank of England will not raise the base rate from its historic low of 0.5 per cent until next summer, meaning banks can feel more confident about offering record low rates.

Lenders are also able to offer such low rates at the moment because they have a glut of cash to lend out through the Government's Funding for Lending scheme.

Launched in 2012, the initiative allowed banks and building societies to borrow cheaply from the Bank on the condition they then used some of the money to offer mortgages to homebuyers.

But they are now under pressure to lend out the money and are competing for custom.

Ms Springall said: 'The banks have all this cash from the Funding for Lending scheme and now they need to hand it out to borrowers to show the Government they are using it – or they could find themselves in trouble.'

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