Borrowers should look beyond headline rates to find best the priced deal, according to research by MoneySupermarket.
The comparison website ran a study of rates offered by building societies compared to banks and found that, overall, building societies offer lower cost mortgages.
It claimed that lower rates don’t always mean the best deals, advising users to check the product fees as well as the interest rates.
On average, two-year fixed rate mortgages from building societies and banks offer similar rates – 4.15 per cent for societies, compared to 4.22 per cent.
However, the report found that overall building societies come out on top with much lower arrangement and booking fees, which it said could save consumers over £700 over the term of the mortgage deal.
With a five-year fixed rate mortgage, banks offer a lower average interest rate of 4.62 per cent, but when taking into account the higher fees, consumers could be saving more than £200 if they went with a building society, MoneySupermarket said.
One area where banks do come out on top is in the first-time-buyer sector, where set up costs are often a more important factor as they are likely to have less cash available to pay for the additional upfront fees.
MoneySupermarket’s report claimed that the difference between the top rate for a two-year fixed mortgage with a 90 per cent loan-to-value (LTV) from First Direct and Chelsea Building Society is 0.2 per cent but when the fees are factored in, there is an overall saving to be made of £1,000 by going with First Direct.
This is even more prominent with five-year fixed rates, where opting for NatWest’s mortgage rather than that from Chelsea Building Society could result in a saving of £3,500 over the term of the deal.
Mortgage expert Clare Francis said: “When looking for a mortgage, don’t just go to the big banks as there are some great deals available from smaller lenders too and it’s really important to get the best product as it could literally mean the difference in cost of thousands of pounds.
“What’s more, the deal with the lowest rate of interest won’t necessarily work out to be the cheapest. This is because set up fees can have a significant impact on the overall cost of a mortgage and they vary considerably.
“It can work out cheaper to opt for a product with a higher rate in return for lower set up costs – it will depend on the size of the loan. Therefore when comparing mortgages you need to calculate the total amount you’ll pay over the term of the deal – monthly repayments plus fees – in order to work out which will be the best value for you.”
