Online mortgage broker Trussle has claimed that homeowners choosing a mortgage with one of the UK’s ‘big six’ lenders could be paying almost £900 over the odds by opting for the lowest rate deal.
Its study of the ‘big six’ lenders looked at their lowest rate deals, often considered the most attractive by borrowers, and compares these to their best deals by true cost, accounting for all fees and charges. In almost every instance, the lowest rate deal is not the most favourable for borrowers.
On June 15th, Nationwide Building Society’s lowest two-year fixed rate (1.54%) would have cost a borrower £14,213 over the two-year introductory period, when all fees and incentives are considered. However, the same homeowner could have saved up to £874 by choosing a deal from the same lender with a higher interest rate (1.94%) but lower fees.
Meanwhile, Santander’s lowest two-year fixed rate (1.44%) would have cost £14,485 over the first two years, but a borrower could have saved up to £811 by choosing the bank’s higher rate deal of 1.89%, which comes with lower charges.
These calculations are based on someone getting a mortgage of £136,144, which equates to a 60% loan-to-value ratio on the UK’s average house price of £226,906.
How lowest rate deal can end up costing borrowers far more over introductory period
| Lender | Two-year fixed mortgage product | Initial rate | True cost over initial two-year period | Difference in cost over introductory period |
| Nationwide | 125182 | 1.54% | £14,213 | £874 |
| Nationwide | 125240 | 1.94% | £13,339 | |
| Santander | MD48R | 1.44% | £14,485 | £811 |
| Santander | MD49R | 1.89% | £13,674 |
The ‘big six’ lenders (Lloyds Bank, Nationwide Building Society, RBS, Santander, Barclays and HSBC) serve 68% of the market, and the difference in true cost between each bank’s lowest two-year fixed rate deal and their best value deal averages at £430. By choosing a two-year fixed product based on headline rate, rather than true cost, their one million new mortgage customers each year could collectively be losing out on over £444 million, up from the £405 million first reported by Trussle in March.
It is much the same in the five-year fixed market; as of June 15th, a Nationwide customer who opted for the bank’s lowest rate deal of 2.09% would pay £693 more over the initial period than if they chose Nationwide’s 2.29% deal. Likewise, an HSBC customer could save £234 by choosing the bank’s 2.09% product rather than its lowest 1.89% deal.
| Lender | Five-year fixed mortgage product | Initial rate | True cost over initial five-year period | Difference in cost over introductory period |
| Nationwide | 125079 | 2.09% | £36,066 | £693 |
| Nationwide | 124893 | 2.29% | £35,373 | |
| HSBC | 4052163 | 1.89% | £35,216 | £234 |
| HSBC | 4052215 | 2.09% | £34,982 |
A study by Trussle found that 30% of Brits understand all information presented by lenders when considering their mortgage deal, while 9% feel that deals hide important information. 44% consider upfront costs when choosing their mortgage.
Ishaan Malhi, CEO and founder of online mortgage broker Trussle, said: “The focus should always be on true cost – the interest rate plus associated fees – when comparing mortgage deals. Too often, borrowers are lured into making a decision based on headline rate alone and end up paying hundreds of pounds more in unexpected charges than they would on other available deals.
“The ‘big six’ have a huge amount of influence and at the moment, they are contributing to the already confusing process of securing a mortgage. Something needs to change to give borrowers more transparency. It’s time that lenders, brokers and comparison sites start displaying true cost alongside deals. By making this information clearly available to homeowners, the market would become far more explicit and would work better for everyone as a result.”