Beware of the high mortgage fees masked by low headline rates

Borrowers are being warned against choosing a mortgage based on the ‘headline’ interest rate alone, as analysis from MoneySuperMarket shows that the true costs of the lowest-rate deals are more expensive than on some higher-rate products.
 
The UK’s number one comparison site analysed fees and rates on a range of different mortgages and found that deals that boast market-leading rates can also come loaded with high fees. What is more, it is no longer the case that the best mortgages are only available to those with large deposits.
 
For example,the lowest fixed rate mortgage is a two-year deal from HSBC at 1.59 per cent, available to those with a deposit of 40 per cent or more. However, it has a combined  booking and arrangement fee of £1,999. Over the two-year fixed term someone borrowing £150,000 over 25 years, would repay a total of £16,543 (including the set-up costs). By comparison, the leading two-year fix available for loans up to 75 per cent of the property’s value, is from the Post Office. It has a higher rate of 1.98 per cent but the arrangement fee is much lower at £995, and it actually works out cheaper: the total amount that would be paid back over the two years is £16,211 – a saving of £332.
 
Even better value is Cumberland Building Society’s 70 per cent two-year fix, which has a rate of 2.08 per cent but the fee is just £699, meaning the true cost over two years for someone borrowing £150,000 is  £16,107 - £436 cheaper than the HSBC mortgage.
 
Clare Francis, Editor-in-Chief at MoneySuperMarket.com said: “When comparing mortgages, it’s crucial to factor in the fee and not just go for the product with the lowest rate as the set-up costs can significantly impact the overall value. In some cases it can be worth paying a high fee in order to secure the lowest possible rate but this depends on the amount you are looking to borrow – the larger the loan, the less of an impact the fee has. The only way to work out what is the best mortgage for you is to calculate the total amount you’ll pay – monthly payments and arrangement fees – over the term of the deal. It is well worth taking the time to do whenever you are looking for a new mortgage as it could save you hundreds of pounds.
 
“Over the last few years, the most competitive mortgages have only been available to those with large deposits – in many cases you needed to have at least 40 per cent to put down. However, that seems to be changing giving those with smaller deposits access to some great mortgage deals. That said, those with big deposits are still being enticed by ultra-low rates, but huge arrangement fees mean that seemingly cheap mortgages aren’t always quite as good as they appear to be.”