Choosing a mortgage can be a complex business as there are so many different rates and fees to take into consideration, but while it may seem like a sensible idea to opt for the deal with the lowest headline rate, you may end up paying more upfront in mortgage fees. Worse still, these fees are on the rise.
Research by Moneyfacts.co.uk has revealed that the average mortgage fee has seen a particularly sharp rise over the last six months, having soared from £927 to £967 today. Meanwhile, the average fixed mortgage fee has seen an equally surprising rise over the same period to stand at a new two-year high of £975.
But why have these fees started to creep up? Well, according to Moneyfacts' finance expert Rachel Springall, these rising fees are linked to a "flux" of headline-grabbing low rate deals that charge higher fees for the privilege. For instance, the lowest two-year fixed rate deals on the market have an average fee of £1,483, which is significantly larger than the overall average two-year fixed rate fee of £1,062.
However, this doesn't mean you have to put up with these higher fees: deals with more manageable fees are around, and there are even some mortgages that come with none at all! For this reason, Rachel exhorts borrowers to evaluate the overall cost of the mortgage, including the initial rate, the fees and the revert rate, as over the long term, the lowest rate deal may not necessarily be the most cost-effective one.
For example: a borrower with a 25% deposit who wants a £250,000 mortgage could not only make an upfront saving by opting for a fee-free mortgage, but could also make savings over the lifetime of the mortgage. The lowest two-year fixed rate mortgage overall has an appealing initial rate of 1.34%, which is much lower than the lowest two-year fixed deal without any fees (1.94%); however, the former deal carries a hefty fee of £1,675 and its standard variable rate is much higher at 5.15% (as opposed to 4.99%). This means that the borrower could make a total saving of £3,275.08 by the end of the mortgage by opting for the fee-free deal.
Bearing the above in mind, "it's crucial for anyone looking for a new mortgage deal to not be seduced by the promise of an initially low-rate deal", says Rachel. "Working out the overall cost of the mortgage is the best way to ensure that the most cost-effective option is taken, so if anyone finds it difficult to calculate this, they would be wise to seek out an independent financial adviser to help them find the right deal for them."
You can also use our mortgage best buy charts to take a good look at what is being offered on the market and gain an idea of the best deals. Provided you add up all the costs and work out how much you will be paying, both upfront and over the long term, you should be able to secure the best deal for you.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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