Borrowers are being warned against choosing a mortgage based on the ‘headline’ interest rate alone.
Analysis from MoneySuperMarket shows that the true costs of the lowest-rate deals are more expensive than on some higher-rate products.
The UK 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’s more, it’s no longer true that the best mortgages go solely 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.
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