Research shows that the average mortgage application fee in the UK has increased by 20% since 2009 and borrowers should look beyond headline rates to find best the priced deal as lower rates don't always mean the best deals.
Researchers are urging borrowers to check the product fees as well as the interest rates and not be blinded by low interest rates on products, as high fees could mean they end up paying more for their borrowing than necessary.
Analysis by Moneysupermarket has found that it is more difficult for borrowers to compare the true cost of mortgages now than it was a few years ago. Products with the lowest headline rates are not necessarily the best value over the term of the deal as once fees are factored in, a product with a slightly higher rate but lower set up costs may actually prove cheaper.
For example, the lowest two year fixed rate mortgage is from HSBC at 2.64%, however adding the combined booking and arrangement fee of £1,999 means the total amount to be paid back over the two years for someone borrowing £150,000 is £18,404.20.
The same amount borrowed over two years with Bank of Ireland at a higher rate of 2.78% and a fee of only £799, would cost £17,461.48, a saving of £942.72 over the two year period, despite the interest rate being 0.14% higher.
‘It’s very easy for borrowers looking for a new mortgage to be attracted by low headline rates. However it is vital to consider the account arrangement and booking fees as part of the overall cost. Fee costs can vary greatly between providers so taking the time to work out the total amount you have to repay over the term of the offer is essential,’ said the firm’s mortgage expert Clare Francis.
‘That said, for some people it may be worth paying a high fee in order to benefit from the lowest interest rate. It will all depend on the amount you are looking to borrow. On large mortgages a high fee can be worth paying in order to secure a low rate. However, with smaller mortgages, where a high fee will form a larger proportion of the overall loan size, it may work out cheaper to keep the set up costs low even if it means paying a slightly higher monthly payment,’ she explained.
‘When comparing mortgages you should always look at the total amount you would repay, including fees, over the term of the deal. This is the only way to identify which product will be the best value to you. Think about whether you want a fixed or variable rate deal, and if you do opt for a variable rate mortgage you need to ensure that you will be able to afford your monthly repayments if and when interest rates do rise as they won't stay at this level forever,’ she added.
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