Mortgage borrowers are being misled by supposed headline rates, potentially costing them thousands of pounds, a new report has claimed.
The study from online mortgage broker Trussle highlighted that if the average borrower went for the lowest two-year fixed rate deal on the market – 1.09% from Santander – they would pay a total of £13,759 over the two years, covering both repayments and initial costs.
However, if they went for a product with a higher rate but smaller costs such as the 1.39% rate from Danske Bank, the total costs over those two years would be almost £1,000 less at £12,800.
Trussle found similar examples in the five-year fixed rate market too, and called on the industry to switch to a model where deals are presented based on true costs rather than burying high, up-front costs in the small print.
As part of its research, Trussle surveyed borrowers to find what they thought of the information and support on offer when searching and applying for a mortgage. Less than a third said they understood all of the information presented by lenders, with almost one in ten (9%) suggesting they felt advertised deals were hiding important information.
What’s more, less than half (44%) took upfront fees into account when considering which mortgage to go for, while just a third (33%) considered what the standard variable rate (SVR) would be after their initial term ended.
Ishaan Malhi, chief executive officer and founder of Trussle, said that it was important to “tackle the lack of transparency” in the mortgage market, arguing that the way mortgages are displayed “is at best inconsistent and at worst misleading”.
He continued: “Borrowers are enticed into making decisions based on low headline rates rather than true cost, and can end up paying out more than they would on other available deals. Simply put, mortgage rates are overrated.”
