Two-year fixed rate mortgage deals hit record low

Leeds Building Society launched their lowest ever two-year fixed rate mortgage with a rate of just 1.99 per cent, bringing the average two-year fixed rate down to a record low of 3.82 per cent, down from 4.01 in August, according to analysis by MoneySupermarket.

Falling mortgage rates is good news for borrowers, however, the UK's number one comparison site is urging anyone looking at low rate deals to look beyond the headline rate and take into account all fees and charges before applying, or they could end up paying more for their borrowing than necessary.

Although average mortgage rates have fallen, further analysis by MoneySupermarket shows that the fees for fixed rate mortgage products have increased by 6.4 per cent since June 2011 making it more difficult for borrowers to compare the true cost of mortgages.

Once fees are factored in, a product with a slightly higher rate but lower set-up costs may actually prove cheaper for some borrowers.

For example, the Leeds Building Society two-year fixed rate deal at 1.99 per cent includes a combined booking and arrangement fee of £1,999. The high product fee means that this deal is only a best buy for those customers looking to borrow more than £164,350. For smaller mortgages, Yorkshire Building Society's two-year fixed rate deal at 2.49 per cent works out cheaper, due to a lower £995 fee. Borrowing £150,000 on the Leeds BS mortgage would cost £17,347 over the two year term, while Yorkshire Building Society's would cost £17,259 - a saving of £88.

Clare Francis, mortgage spokesperson at MoneySupermarket said: "Most people are blinded by rate when it comes to mortgages. A two-year fixed rate at 1.99 per cent initially seems to be an amazing deal but the new two-year fix from Leeds is also the perfect example of why you need to look beyond the headline rate. The set-up fees total £1,999 - well above the £1,253 average. As a result anyone borrowing less than £164,350 would actually be better off with Yorkshire Building Society's two-year fix at 2.49% because the fee is lower at £995.

"Obviously, if you're looking to borrow more than £164,350 and want to fix your mortgage payments for two years, the new Leeds deal does offer the best value over that term. When looking for a mortgage it is therefore vital to work out the total amount you'd repay over the term of the offer."