New first direct mortgage offers 2.29% above base rate

Mortgage lender first direct has launched a new base rate offset tracker mortgage, which offers to remain 2.29 per cent above the Bank of England base rate.

Designed to track the official lending rate at this level for the entire lifetime of the loan, the mortgage, which has a £999 application fee and a maximum loan-to-value (LTV) of 60 per cent, is currently priced at 2.9 per cent APR.

According to the lender, 90 per cent of its mortgage customers possess an offset mortgage, which means they are "choosing to make efficient use of their day-to-day savings and current account balances by netting them off against their loan".

"With the base rate continuing to be at a record low, tracker mortgages are still proving extremely popular and we want to continue offering best buy rates for our customers," explained first direct head of mortgages Jimmy Kelly.

However, moneysupermarket.com said that despite the mortgage appearing appealing from the onset, it has some flaws, just like HSBC's recently launched sub two per cent product.

The website's mortgage spokesperson Hannah-Mercedes Skenfield explained that, due to its requirement of 60 per cent LTV, many consumers including "virtually all first-time buyers" have been excluded from qualifying.

She said: "I would imagine more people will be interested by the product available at 80 per cent LTV, tracking the Base Rate plus 2.99 per cent."

"Unlike the HSBC product which is linked to the lender's SVR, this is a tracker mortgage directly linked at 2.29 per cent above Bank of England Base Rate."

Meanwhile, mortgage holders are set to continue benefiting from low interest repayments following the Bank of England's decision to keep the base lending rate frozen for the seventh consecutive month.

The Bank of England's Monetary Policy Committee voted to keep the rates frozen at 0.5 per cent and announced that it will continue with its £75 billion quantitative easing programme.

Mortgage specialists remained unsurprised by the decision, with Ray Boulger of UK mortgage broker John Charcol commenting that it seems likely the rates will be kept low until "well into next year".

The Association of Mortgage Intermediaries' director Robert Sinclair also weighed in on the decision, saying that perhaps it is time for the committee to consider cutting the rates further as suggested in some quarters to force banks to lend more.

He argued that "this would assist in promoting the recovery that is showing early indications of arriving".

"First time buyers and those on higher loan to value mortgages are still in very difficult positions and more needs to be done to assist those groups who will be crucial in ensuring we speed the economic recovery," he added.