Mortgage rates have fallen to an all-time low and the number of products available has increased by 37 per cent as a result of the Bank of England’s Funding for Lending Scheme. The best rates are still only available to those with big deposits, but first time buyers are also benefiting from the best rates for years.
However, borrowers need to be aware of a possible sting in the tail according to analysis by MoneySupermarket, with the average application fee on fixed rate products increasing 17 per cent and tracker products by nine per cent. In some cases the lowest rate does not necessarily equate to the best value mortgage.
The analysis by the UK’s number one comparison site also found an increase in the number of fixed rate mortgages. Since June 2012, the number of two-year fixed products has risen by 138 per cent, while the average rate has fallen 0.89 percentage points to a low of 3.56 per cent. The number of five-year fixed rate mortgages has increased by 51 per cent, while the average rate has dropped 0.70 percentage points. However, the application fees on two-year fixed rate mortgages have increased by 30 per cent in the same period, to an average of £1,033, while five-year fees have increased by 22 per cent to an average of £883.
As a result, anyone looking for a mortgage needs to make sure they do not overlook the impact of the fee and work out the total cost of borrowing, rather than focusing on the headline rate alone. Products with the lowest headline rates are not necessarily the best value over the term of the deal: once fees are factored in, a product with a slightly higher rate but lower set-up costs may actually prove cheaper.
For example, the lowest two-year fixed rate mortgage is from Chelsea Building Society offering 1.89 per cent; however, adding the combined booking and arrangement fee of £1,695 means the total amount to be paid back over the two years for someone borrowing £150,000 is £16,761.72. The same amount borrowed over two years with Norwich & Peterborough at a higher rate of 1.99 per cent, and a fee of only £995, would cost £16,236.20 – a saving of £525.52 over the two year period, despite the interest rate being 0.1 percentage points higher.
Clare Francis, mortgage expert at MoneySupermarket.com , said: “It’s a great time for mortgage borrowers. Since the Bank of England’s Funding for Lending Scheme launched last August, we have seen a significant increase in the number of new mortgage products on offer. In addition, two- and five-year fixed rate deals are currently at an all-time low. However, the thing to watch out for is the set up costs. Some of the lowest rates have very high fees.
“It’s very easy to be attracted by low headline rates when looking at mortgages, but you must also factor in the fees you’ll be charged to take the mortgage out. Set-up costs can vary greatly between providers so taking the time to work out the total amount you have to repay over the term of the offer is essential.
“When comparing mortgages you should always look at the total amount you would repay, including fees, over the term of the deal. This is the only way to identify which product will be the best value to you. Think about whether you want a fixed or variable rate deal, and if you do opt for a variable rate mortgage you need to ensure that you will be able to afford your monthly repayments if and when interest rates do rise as they won’t stay at this level forever.”
Notes to editors
Average Mortgage Fees (Not Inc % Fees)
Application Booking Application Fee Fee Total Number of Fee (Fixed Booking Fee (Tracker (Tracker Products Products) (Fixed Products) Products) Products) Sep-09 2223 GBP705 GBP334 GBP772 GBP247 Mar-10 2599 GBP704 GBP276 GBP791 GBP296 Sep-10 3200 GBP699 GBP274 GBP818 GBP354 Mar-11 3127 GBP802 GBP343 GBP890 GBP254 Jun-11 3105 GBP846 GBP332 GBP921 GBP237 May-12 2177 GBP806 GBP280 GBP954 GBP314 Jun-12 2271 GBP812 GBP272 GBP961 GBP316 Feb-13 3115 GBP953 GBP290 GBP1,047 GBP283
Two Year Fixed Rate Mortgages
Total Average Number of Average Booking Products Average Rate Application Fee Fee Average LTV Sep-09 298 6.17% GBP947 GBP223 76% Mar-10 329 5.70% GBP755 GBP260 76% Sep-10 160 4.99% GBP774 GBP193 78% Mar-11 66 4.74% GBP887 GBP250 75% Jun-11 99 4.56% GBP809 GBP341 74% May-12 359 4.44% GBP744 GBP253 77% Jun-12 356 4.45% GBP792 GBP249 77% Feb-13 848 3.56% GBP1,033 GBP336 74%
Five Year Fixed Rate Mortgages
Total Average Number of Average Booking Products Average Rate Application Fee Fee Average LTV Sep-09 320 6.01% GBP770 GBP469 77% Mar-10 380 5.78% GBP783 GBP274 76% Sep-10 452 5.30% GBP852 GBP226 77% Mar-11 418 5.64% GBP857 GBP340 78% Jun-11 427 5.31% GBP820 GBP345 78% May-12 405 4.76% GBP728 GBP276 79% Jun-12 398 4.76% GBP724 GBP276 78% Feb-13 599 4.06% GBP883 GBP317 76%
First Time Buyer Mortgages
Total Average Number of Average Booking Products Average Rate Application Fee Fee Average LTV Sep-09 1189 5.26% GBP829 GBP293 74% Mar-10 1437 4.81% GBP802 GBP253 76% Sep-10 1688 4.46% GBP828 GBP261 77% Mar-11 1552 4.48% GBP848 GBP302 77% Jun-11 1581 4.32% GBP806 GBP294 77% May-12 1286 4.31% GBP794 GBP267 78% Jun-12 1228 4.34% GBP803 GBP258 78% Feb-13 1590 3.78% GBP886 GBP261 76%
Sourced by http://www.moneysupermarket.com 08.02.2013