MoneySupermarket has warned borrowers to look out for rising mortgage fees. This comes as rates continue to fall.
Mortgage rates have fallen to an all-time low and the number of products available has increased by 37% as a result of the Bank of England’s Funding for Lending Scheme. The best rates are still only available to those with big deposits, but first time buyers are also benefiting from the best rates for years.
However, borrowers need to be aware of a possible sting in the tail according to analysis by MoneySupermarket, with the average application fee on fixed rate products increasing 17% and tracker products by 9%. In some cases the lowest rate does not necessarily equate to the best value mortgage it said.
The analysis by the comparison site also found an increase in the number of fixed rate mortgages. Since June 2012, the number of two-year fixed products has risen by 138%, while the average rate has fallen 0.89 percentage points to a low of 3.56%. The number of five-year fixed rate mortgages has increased by 51%, while the average rate has dropped 0.70 percentage points. However, the application fees on two-year fixed rate mortgages have increased by 30% in the same period, to an average of £1,033, while five-year fees have increased by 22% to an average of £883.
MoneySupermarket recommends that those looking for a mortgage needs to establish the total cost of borrowing, rather than focusing on the headline rate alone. Products with the lowest headline rates are not necessarily the best value over the term of the deal: 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 Chelsea Building Society offering 1.89%, however adding the combined booking and arrangement fee of £1,695 means the total amount to be paid back over the two years for someone borrowing £150,000 is £16,761.72. The same amount borrowed over two years with Norwich & Peterborough at a higher rate of 1.99%, and a fee of only £995, would cost £16,236.20 – a saving of £525.52 over the two year period, despite the interest rate being 0.1 percentage points higher.
Clare Francis, mortgage spokesperson at MoneySupermarket.com, said: “It’s a great time for mortgage borrowers. Since the Bank of England’s Funding for Lending Scheme launched last August, we have seen a significant increase in the number of new mortgage products on offer. In addition, two and five-year fixed rate deals are currently at an all-time low. However, the thing to watch out for is the set up costs. Some of the lowest rates have very high fees.”