Those eye-catching deals can actually cost hundreds of pounds more than mortgages that initially appear to charge more.
Although house price growth and sales have slowed lately, the remortgage market is buoyant as homeowners look to cut outgoings or release extra funds to do up their homes or help family members on to the property ladder.
Many are also keen to lock into a competitive deal in case the Bank of England hikes interest rates and forces up mortgage costs across the board. The Bank’s Monetary Policy Committee (MPC) meets tomorrow with markets pricing a 90 per cent likelihood that it will hike base rates to 0.75 per cent.
So whatever your reason for taking out a new mortgage, you need to look beyond the headline rate.
Hit for six
New research from online broker Trussle.com suggests that homeowners choosing a mortgage with one of the “big six” lenders could be paying almost £900 over the odds by opting for the lowest rate deal.
Nationwide recently offered a two-year fixed-rate package charging 1.54 per cent and another two-year fix at 1.94 per cent.
The seemingly cheaper mortgage would cost £14,213 over the initial two-year period with all fees and incentives added in. However, the apparently pricier deal would cost £13,339, a hefty £874 less.
This is based on somebody living in the average UK home, currently £226,906, and taking out a 60 per cent loan-tovalue mortgage for £136,144. Santander’s lowest two-year fixed-rate at 1.44 per cent would have cost the same person £14,485 in total over the first two years, but they could have saved £811 by going with its 1.89 per cent rate, which has lower charges and costs £13,674.
In a fix
The average cost difference across big six lenders (Lloyds, RBS, Nationwide, Santander, Barclays, HSBC), who serve two thirds of the market, is £430, up from £390 in March.
Trussle founder Ishaan Malhi said fewer than one in three understand all information presented by lenders when considering their mortgage deal, while less than half consider upfront costs: “The focus should always be on the true cost of the deal, not just the interest rate, but associated fees as well.”
Borrowers are often drawn to a particular deal based on the headline rate alone and risk paying a lot more in unexpected charges.
Nationwide’s online calculator lets borrowers see the full costs and Malhi would like to see others do likewise: “This would make the market far more explicit and efficient for everyone.”
While most people remortgage to save money, 5 per cent now do so because of divorce or separation, as couples look to set up on their own.
Another 16 per cent are looking to raise money to pay down debts, according to research from LMS.
Chief executive Nick Chadbourne said demand for five-year fixed rate remortgages remains historically high as borrowers look to protect themselves from potential base rate rises: “They continue to dominate the market as borrowers lock into today’s attractive low rates for the long-term.”
The number of mortgage approvals fell 4.7 per cent in the year to June, according to UK Finance, as the market slows, but remortgages are up 3.4 per cent.
Mike Scott, chief property analyst at fixed-fee estate agent Yopa, said this reflects a large fall in the number of buy-to-let mortgages because of the Treasury’s tax crackdown.
Parents are also raising funds to help children onto the property ladder.
“Remortgages are rising and some of that money may find its way back into the housing market via the reliable bank of mum and dad,” he added.
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