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Mortgage providers may be reluctant to decrease their interest rates to attract new borrowers, but that doesn't mean they aren't trying other things to appeal. Indeed, 40% of the mortgage market is now offering products without arrangement fees to remain competitive.
This is after the number of fee-free deals increased by 274 from the start of the year, which means there are now 2,007 mortgages without an arrangement fee to choose from. What's more, the number of fee-free mortgages has been increasing steadily over the last year, which is great news for borrowers looking to keep upfront costs down.
|Number of fee-free mortgages||1,270||1,709||1,733||2,007|
|Percentage of the market||33%||36%||38%||40%|
"Providers have opted to keep rates relatively static, choosing to wait and see if a base rate rise will come to fruition," Charlotte Nelson, finance expert at Moneyfacts.co.uk, explained. "By reducing some of their fees to zero, providers are able to remain competitive among their rivals."
Unfortunately, some providers have gone the other way, as Charlotte found that "while the number of fee-free deals has increased, so too has the average fee, rising from £979 in May to £990 today." This means that if you are tempted by a mortgage with a low rate, it's important to do the maths, as the higher upfront cost could nullify the lower monthly repayments you would enjoy – especially if you choose to add the fees to the mortgage amount.
"Providers have always used fees to compensate for a lower rate, so borrowers now must become wise to this tactic, particularly with more no-fee deals on the market," Charlotte said. "Many borrowers focus on achieving the cheapest possible deal, and while this should be admired, they may be missing out on offers that could be more cost-effective in the long run.
"For example, borrowers opting for the lowest two-year fixed rate deal at 75% loan-to-value would be £1,131.80 worse off [based on a £200,000 mortgage over a 25-year term on a capital and interest repayment basis] compared to someone opting for the lowest deal without a fee." That's quite a difference over time, and something mortgage borrowers might overlook when deciding on a mortgage without an adviser.
"Ignoring the fee-free options on the market can be a costly mistake as fees can mount up, particularly if you remortgage multiple times over the lifetime of your mortgage," Charlotte concluded. Additionally, it's important to keep in mind that there are other fees to pay as well, such as legal and valuation fees, not to mention the cost of moving itself.
Luckily, our mortgage calculator allows you to not just search based on your specific criteria, but also to easily see what the associated product fees would be, giving you a clear overview of the most competitive deals on the market.
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