Lowest Ever Mortgage Rates but Beware Sting of Higher Fees

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


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