Mortgage shoppers are being urged to check the full value of deals by taking into account not only the rate but the fees too.
The advice comes as analysts revealed how much some of the UK’s biggest lenders charged for mortgages in 2020.
Rates are currently very low and therefore anyone taking out a mortgage or remortgaging will be benefiting from great value deals at the moment.
Due to several economic factors, lenders are fighting for customers and have been dropping their rates for the last year in a bid to attract them.
The start of 2020 looks, on the surface, to have seen an end to this trend as mortgage interest rates on two-year and five-year fixed rate deals have barely changed.
Yet, Moneyfacts.co.uk, says this does not show the full picture. In fact, when it assessed something called the ‘true rate’ prices had reduced much further with one lender emerging with average cuts of as much as 0.14% on its deals since January.
What’s the true rate?
According to Moneyfacts.co.uk, the ‘true rate’ is a combination of the initial interest rate and the product fee charged. Its figures are based on a loan of £150,000 for 75% of the property’s value on either a two or five-year fixed deal.
Eleanor Williams, finance expert at Moneyfacts, explained: “With consumers becoming increasingly savvy, many are aware that interest rates are at historic lows for mortgages, and so the next logical step for them is to consider the overall package of a deal.
“With some fees in this sector currently as high as £2,000, or more, borrowers need to be careful that they are not swayed by just a tempting rate and should carefully consider the total deal they are taking on.”
Two-year deals
For borrowers on two-year deals, this is particularly relevant as they will have only 24 monthly repayments.
Being lured into a deal with a low interest rate but high fees would mean a borrower would have fewer repayments over which to recoup the money they would have saved if they opted for a higher initial rate but a much lower fee.
If the borrowers did not have the savings to cover a fee payment up front, they might consider extending their mortgage borrowing to pay for this and would therefore be paying interest on the fee and the existing mortgage balance.
Williams added: “As with any financial commitment, it is vital that borrowers take into account the overall cost of any deal they are considering and make sure that what they are committing to will be affordable over the long-term. Talking with an independent financial adviser about the various options would be wise.”
| Residential mortgage market analysis – average two-year true rate | ||||||
| Average two-year true rate 75% LTV Jan-20 | Average two-year true rate 75% LTV Feb-20 | Average two-year true rate 75% LTV Mar-20 | Difference Jan-Feb | Difference Feb-Mar | Overall difference Jan-Mar | |
| Barclays | 2.08% | 2.05% | 1.96% | -0.03% | -0.09% | -0.12% |
| Coventry BS | 1.92% | 1.92% | 1.78% | 0.00% | -0.14% | -0.14% |
| HSBC Group | 1.95% | 1.93% | 1.91% | -0.02% | -0.02% | -0.04% |
| Lloyds Banking Group | 2.27% | 2.25% | 2.25% | -0.02% | 0.00% | -0.02% |
| Nationwide BS | 1.86% | 1.83% | 1.83% | -0.03% | 0.00% | -0.03% |
| Royal Bank of Scotland Group | 2.04% | 2.04% | 2.04% | 0.00% | 0.00% | 0.00% |
| Santander | 2.06% | 2.08% | 2.09% | 0.02% | 0.01% | 0.03% |
| TSB | 1.93% | 1.93% | 1.93% | 0.00% | 0.00% | 0.00% |
| Virgin Money Group | 2.07% | 2.03% | 2.03% | -0.04% | 0.00% | -0.04% |
| Yorkshire BS Group | 2.02% | 2.02% | 2.01% | 0.00% | -0.01% | -0.01% |
| Source: Moneyfacts Treasury Report | ||||||
| Residential mortgage market analysis – average five-year true rate | ||||||
| Average five-year true rate 75% LTV Jan-20 | Average five-year true rate 75% LTV Feb-20 | Average five-year true rate 75% LTV Mar-20 | Difference Jan-Feb | Difference
Feb-Mar |
Overall difference Jan- Mar | |
| Barclays | 1.97% | 1.97% | 1.92% | 0.00% | -0.05% | -0.05% |
| Coventry BS | 2.01% | 2.01% | 1.87% | 0.00% | -0.14% | -0.14% |
| HSBC Group | 1.76% | 1.72% | 1.73% | -0.04% | 0.01% | -0.03% |
| Lloyds Banking Group | 2.37% | 2.37% | 2.37% | 0.00% | 0.00% | 0.00% |
| Nationwide BS | 2.01% | 1.95% | 1.95% | -0.06% | 0.00% | -0.06% |
| Royal Bank of Scotland Group | 2.23% | 2.23% | 2.23% | 0.00% | 0.00% | 0.00% |
| Santander | 2.01% | 2.01% | 2.03% | 0.00% | 0.02% | 0.02% |
| TSB | 1.89% | 1.89% | 1.89% | 0.00% | 0.00% | 0.00% |
| Virgin Money Group | 2.30% | 2.30% | 2.30% | 0.00% | 0.00% | 0.00% |
| Yorkshire BS Group | 2.04% | 2.01% | 1.98% | -0.03% | -0.03% | -0.06% |
| Source: Moneyfacts Treasury Report | ||||||
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