Derin Clark

Derin Clark

Online Reporter
Published: 29/07/2019

The majority of loan-to-value (LTV) mortgage deals have seen a fall in the average product fee since July 2018, research from Moneyfacts.co.uk shows.

The research reveals that the average product fee for a maximum 65% LTV saw the biggest fall of £262 since July 2018 to stand at £881 today. Meanwhile, the average product fee at the maximum 95% LTV tier also fell, decreasing by £46 over the last 12 months to stand at £914. In fact, there has been a fall in product fees across all tiers apart from the 70%, 60% and up to 55% LTV tiers.

Two-year fixed rate mortgages

LTV Products with no product fee July 2019 Products with no product fee July 2018 Average product fee* July 2019 Average product fee* July 2018
95% 88 62 £914 £960
90% 131 107 £985 £1,002
85% 109 91 £987 £1,020
80% 86 87 £1,062 £1,083
75% 97 97 £1,055 £1,088
70% 27 27 £1,198 £1,174
65% 10 6 £881 £1,143
60% 65 60 £1,208 £1,193
Up to 55% 3 1 £790 £779

*Average product fee calculation excludes products with no fee.

Mortgage competition sees rates fall

This fall in product fees is part of a wider competition among mortgage providers, which has also seen the mortgage rates drop since August 2018, despite the Bank of England increasing base rate that month to 0.75%. For example, during this period the average two-year fixed mortgage rate fell from 2.53% to 2.48% this month. In addition to the fall in rates, competition has also intensified through an increase in the number of two-year fixed rate mortgage products available across all LTV tiers except 80% LTV tier.

Two-year fixed rate mortgages

LTV Number of products available July 2019 Number of products available July 2018
95% 144 122
90% 291 276
85% 264 238
80% 230 231
75% 284 280
70% 97 93
65% 26 24
60% 187 180
Up to 55% 15 6

*Average product fee calculation excludes products with no fee.

Darren Cook, finance expert at Moneyfacts.co.uk, said: “The mortgage market has recently boasted some of the lowest mortgage rates on record, which is fantastic news for borrowers, but our latest research into the average product fee charged in the popular two-year fixed rate market has shown that this too has fallen over the past 12 months. More significant still is that most LTV tiers – with the exception of the 70%, 60% and up to 55% LTV tiers – have seen fees fall, as lenders continue to look for additional ways beyond rate alone to compete.

“Potential first-time buyers who are likely to be looking at higher LTV mortgages will be pleased to see that two-year fixed rate products at maximum 95% LTV not only have one of the lowest average fees at £914, down £46 from last year’s average, but the average interest rate for this product has fallen from 3.98% 12 months ago to 3.25% today. Furthermore, the number of fee-free deals at maximum 95% LTV has risen from 62 to 88 products over the past year, which constitutes 72.13% of all products within this sector.

“It is imperative that first-time borrowers, existing borrowers looking to switch deals and those moving house look at the true cost of the mortgage, taking into account any fees and incentive packages, to ensure that they get the most cost-effective deal. For instance, if a borrower were to opt for a two-year fixed rate repayment mortgage of £150,000 over a term of 25 years at an initial rate of 2.15% with no product fee, this will amount to a true cost of £15,523.02 over the two years, whereas if they instead opt for a deal that offers a lower rate of 1.72%, but has a £1,000 fee, the true cost over two years would be £249.78 higher at £15,772.80.

“However, if the loan amount increases to £250,000, still on a repayment-only basis over a 25-year term, a rate of 2.15% with no product fee will amount to a true cost of £25,871.69 over two years, while a rate of 1.72% with a £1,000 product fee it will amount to a true cost of £25,561.33, which is £310.36 less. Not only does this emphasise that the best rate alone does not always mean the borrower will be getting the best deal, but it also shows that the best deal for one borrower may not work out the most cost-effective option for another, so it’s always best to do your calculations before taking on the loan.”

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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