Check out the mortgage “best buy” tables and you might think banks and building societies are practically giving away home loans in a new burst of generosity. But look at their track record and you get a reality check: sadly, a lot of the super-cheap mortgage deals on the market aren’t quite as sweet as they look.
While interest rates are at record lows thanks to the Bank of England’s 0.5 per cent base rate, the fees attached to achieving those mortgages are at their highest in 25 years — now hitting an average of £1,522.
The figures come from comparison website Moneyfacts and brokers back them up. Arrangement fees have risen by £112 in this year alone.
“Some lenders have high arrangement fees to drive down their rates,” says Aaron Strutt, of broker Trinity Financial. “Mortgage rates are incredibly low but banks have been hiking those set-up fees.”
Tesco Bank’s new 1.99 per cent two-year fix, for example, has a £1,600 product fee, plus a booking fee of £195. Cheltenham and Gloucester’s two year tracker rate at 1.89 per cent has a £1,995 fee, HSBC’s 1.79 per cent two year fix comes with an arrangement fee of £1,999, whilst Chelsea Building Society’s 1.74 per cent two year fixed rate deal has a £1,545 fee attached.
For borrowers, the important thing is to know exactly what you’re paying. Look beyond rates as very high upfront charges and other fees can have a big impact on the cost of a home loan across its life.
For some, cheap rates may make expensive fees worthwhile, but this depends on the length and size of your mortgage and how quickly you expect to pay it off. Spending some time doing the maths now could save you thousands later on. If unsure, seek advice from a mortgage broker.