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After a cheap mortgage? Don’t forget about fees

After a cheap mortgage? Don’t forget about fees

Category: Mortgages

Updated: 05/05/2015
First Published: 05/05/2015

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Have you heard? Mortgage rates are at record lows! This means it's a great time to consider your options, whether you're buying for the first time, moving up the ladder or simply thinking about remortgaging, because your repayments will be cheaper than ever before. But, before you get too excited, you still need to exercise caution – you need to consider all the aspects of a mortgage before you make your decision, because some people could be caught out by the fees…

Providers offer record-breaking deals

In recent months, providers have been actively competing to secure mortgage business, and they've been doing so by offering the lowest rates ever. Not only has the average rate for a two-year fixed deal fallen to a record low of 2.97% – the first time it's fallen below 3% since Moneyfacts began recording this measure – but there are a lot of deals out there that boast even lower rates.

For example, last month HSBC launched a five-year deal priced at just 1.99%, while on Friday, The Co-Operative announced that it was launching a two-year deal priced at just 1.09% for those with a 40% deposit – the UK's lowest ever two-year mortgage. But just why are providers offering such great rates? Well, it all comes down to the fact that they want to secure your business ahead of a Bank of England rate rise.

Many borrowers coming to the end of a fixed rate deal will find that switching to their lender's standard variable rate (SVR) will see their repayments soar, so providers are offering low rates to attract customers thinking of remortgaging – and ideally keep their current customers, too.

"We are likely to see more headline-grabbing deals as the year comes to a close," said Rachel Springall, finance expert at Moneyfacts. "Lenders will be looking to get customers on board to not only meet lending targets, but also to ensure that they have decent deals on offer before the Bank of England raises interest rates. When this happens, customers sitting on a higher-rate SVR may need to jump to a better deal, so lenders want to attract customers before they lose them."

Do your calculations

However, before you opt for these attention-grabbing deals, make sure to consider the fees involved. The deals highlighted above, for example, both carry fees of £1,500, so you'll need to do a few calculations to make sure that the amount you'll save in repayments won't be outweighed by the higher fee involved – and if you're planning on adding the fee to the mortgage advance (which means you'll pay interest on the fee, too), you'll need to be more careful still.

Happily, not all deals carry such high fees. In fact, the average fee is actually reducing – Moneyfacts' figures show that typical fees have fallen from £688 to £681 in the last month, so it's worth taking a closer look at the small print. Many deals are even coming with no fees whatsoever – the rates may not be as low, but for some borrowers, the lack of fee could make it preferable. Remember that the lowest rate deals will always be for borrowers with a higher deposit, too, so you'll need to do your research to find the deal that's right for you.

Ultimately, it all comes down to your own financial circumstances and the type of mortgage you're looking for, and working out the true cost will always be more important than being swayed by headline-grabbing rates.

What next?

Use our mortgage calculator to compare repayments

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.