If you’re going to buy a property in the coming weeks or months, there are dozens of big decisions you have to make to finalise the house or flat you desire. However, the world of mortgages seems to be getting ever more complex and it doesn’t look like it’s getting any easier on wallets, either. This is according to the latest report from a leading price comparison site, which warns potential customers of the dangers involved with “good deals” – they may not be as good as you think.
A lot of high street organisations continue to offer great deals, whether they’re locally-based building societies or one of the many leading banks in the UK. However, MoneySupermarket.com noted that mortgage customers “should not be blinded by low interest rates” on these kinds of products, because high fees levied on these agreements could effectively see them paying more than necessary.
Analysis by the website discovered that fees for both tracker and fixed-rate mortgage products had increased by more than 20 per cent since September 2009, though due to their obscure nature, many people overlook them; instead, they become much more transfixed by low headline rates. The company therefore recommended that people look at products with slightly higher rates, which have lower set-up costs.
Mortgage expert at MoneySupermarket.com Clare Francis warned: “It’s very easy for borrowers looking for a new mortgage to be attracted by low headline rates; however it is vital to consider the account arrangement and booking fees as part of the overall cost. Fee 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.”
A major example that was flagged by the study was that of HSBC. The bank’s lowest two-year fixed-rate mortgage stands at 2.64 per cent – an industry best – though the addition of combined booking and arrangement fees of £1,999 means that people will pay back £18,404.20 over two years, should they be borrowing £150,000. However, if you were to get a two-year deal with the Bank of Ireland at a rate of 2.78 per cent, you would only be charged a fee of £799, costing you £17,461.48. Despite it being 0.14 percentage points higher, you’d save £942.72 – a month of take-home pay for those earning just above minimum wage.
“It will all depend on the amount you are looking to borrow – on large mortgages a high fee can be worth paying in order to secure a low rate,” said Ms Francis. “However, with smaller mortgages, where a high fee will form a larger proportion of the overall loan size, it may work out cheaper to keep the set up costs low even if it means paying a slightly higher monthly payment.”
As such, it’s recommended to mortgage rookies that they think about whether they want a fixed or variable rate deal, before exploring their options to see if it’s affordable – especially if interest rates change. Tread carefully – you don’t want to be throwing money away.