There’s more good news for first-time buyers with a small deposits as not only have mortgage rates plunged in the last year, fees have fallen too.
Taking out a two-year fixed rate mortgage with a deposit of just 5% will not only cost borrowers less money in interest this month compared to last July but the fees have fallen by an average of £46 over the last month.
The data from Moneyfacts.co.uk shows there are also lots more products available in this section of the mortgage market as lenders continue to compete fiercely for the first-time buyer market.
Although there are mortgages available without product fees, borrowers are being urged to look at how the deals with fees weigh up as – for some levels of borrowing – these can work out cheaper.
Fees v rates?
Indeed, Darren Cook of Moneyfacts, said its imperative first-time borrowers – and even existing homeowners keen to switch deals and those moving home – take into account the fees and incentive packages on offer to ensure they get the most cost-effective deal.
He explained how a borrower choosing a two-year fixed rate mortgage of £150,000 over a 25-year term with a rate of 2.15% and no product fee would pay £15,523 over two years.
However, if they opted instead for a deal which offered a rate of 1.72% but which had a £1,000 fee, the true cost over two years would be £249 higher at £15,772.
But, on the other hand, someone borrowing a higher amount – £250,000 – would actually pay less by choosing the fee-paying mortgage option.
Indeed, Moneyfacts said a customer paying a rate of 2.15% and no product fee would fork out £25,871 over two years. But switching to a lower rate on this level of borrowing and paying the £1,000 fee would amount to a true cost of £25,561 – which is £310 less.
Cook said: “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.”
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