A mortgage war has broken out, with lenders vying to offer some of the cheapest deals ever seen, so if you have a home loan, it is time to think about switching, while if you are hoping to get on the property ladder, this could be your best chance.

 

The announcement earlier this month by Bank of England Governor Mark Carney that its base lending rate is unlikely to rise from its record low of 0.5 per cent this year, and could even fall further, confirmed what many in the mortgage industry suspected, turning a trickle of new low-cost offers into a torrent.

With two-year fixed-rate deals now available at around 1 per cent annual interest, and five-year fixes from just over 2 per cent, anyone on a typical standard variable rate of around 4 per cent stands to make significant savings.

Even those tied into what previously seemed like cheap fixed-rate deals could save by moving on.

Matt Sanders, mortgage spokesman at comparison site Gocompare.com, said: "The penalty fee you may have to pay to get out of your current deal could be offset by the savings you make in the long term from having a lower rate mortgage."

However, few loans are as straightforward as they initially seem, so whether you are looking to remortgage or to buy your first home, some careful maths will be required to prevent expensive mistakes.

Yorkshire Building Society has a two-year tracker at 1.19 per cent, Co-operative Bank is offering a two-year fix at 1.24 per cent and a five-year option at 2.24 per cent, while Norwich and Peterborough Building Society has two-year deals starting at 1.29 per cent.

Rates like these are very tempting, but the best deals are available only to those who can put down a substantial deposit. And the small print can conceal some hefty charges.

Those taking up the Yorkshire's offer must pay a £845 fee and find a 35 per cent deposit. The Co-op loans have a fee of £1,499 and require a 40 per cent deposit, and anyone signing up for N&P's deal will pay £845 alongside a 35 per cent deposit.

For those who can put down only 25 per cent, Yorkshire has a two-year fix at 1.49 per cent with an £845 fee, while First Direct will lend to those with a 15 per cent deposit for the same period at 2.49 per cent with a £950 fee. HSBC has a two-year discount deal at 2.38 per cent for those with a 10 per cent deposit who can afford a £1,499 fee.

Mr Sanders said: "Many products have substantial up-front non-refundable arrangement fees, and as the interest rates have tumbled, these fees have risen. Factor those fees into any mortgage product you are looking to take out.

"There are some mortgages available without up-front fees, but be aware that the interest rates on those products may not be as low. However, the slightly higher interest rate may be worth paying to avoid the up-front fee."

Among the cheapest fee-free deals is a tracker from N&P that charges 1.34 per cent above Bank of England base rate for three years, giving a current rate of 1.84 per cent. However, it is only available to those with a 25 per cent deposit. For those who can put down just 10 per cent, it has a two-year fix at 3.39 per cent.

TSB has fee-free fixes for those with only a five per cent deposit. They are available to remortgagers and first-time buyers at 4.69 per cent for two years and 4.99 per cent for five. Clydesdale has a fee-free three-year fix at 4.89 per cent, also available to first-timers.

Even before the latest news, the number of first-time buyers was increasing. According to the Council of Mortgage Lenders, 16 per cent more entered the Scottish market last year than in 2013 and they took out loans worth 23 per cent more than before.

Although it isn't cheap to buy, it is often considerably cheaper than renting. Halifax says the average Scottish first-timer is £786 a year better off once they move into their own home.

Yorkshire Building Society is offering first-timers with a five per cent deposit a two-year fix at 4.14 per cent but there is a £845 fee.

Mr Sanders said: "The devil really is in the detail with mortgage fees and the respective interest rates. A minute difference in an interest rate could make the difference to whether you are better off going for a lower rate of interest and a fee or not.

"It's important to carefully work out the pros and cons, and if you are struggling to calculate which one would be cheaper, call in the experts, in this case an independent financial adviser."

However, many in the building industry fear that without an extension to the Help to Buy shared equity scheme similar to the one announced for Wales this week, many Scots will still struggle to afford their own homes.

Philip Hogg, chief executive of trade body Homes for Scotland, said: "Over 4,000 properties have been purchased through Help to Buy (Scotland) since it was launched, clearly demonstrating the strong aspirations Scots still have to own their own home, as well as boosting construction and helping to tackle the country's chronic undersupply of housing.

"But whilst buyers in the rest of Britain can take advantage of an extended and fully funded scheme to meet the demand that exists, those in Scotland are faced with the prospect that funds for the final round of 2015/16 investment could again become exhausted early due to high demand."