Be wary of low-rate mortgages - it may not be the best deal, warns Moneyfacts
Borrowers would be better off choosing a deal with no arrangement fee over a lower-rate alternative, says the financial data provider
Here's a warning for mortgage borrowers: don't assume that the deal with the lowest interest rate will be the best one. In fact, borrowers would be better off choosing a deal with no arrangement fee over a lower-rate alternative, warns the financial data provider Moneyfacts.
For instance, the lowest no-fee, two-year fixed-rate mortgage at 60 per cent loan-to-value (currently HSBC's 1.89 per cent deal) would leave borrowers around £1,500 better off in the first year than if they chose the lowest overall rate – Post Office Money's 1.15 per cent deal, which comes with a hefty £1,995 fee.
Lenders like arrangement fees because, by including a massive charge, they can reduce the headline interest rate to make their deal look more attractive than it really is. The actual cost of arranging a mortgage is roughly the same for all lenders, so the only real reason for a large fee is sales trickery.
"Low-rate deals look great on paper but are often accompanied by high fees," said Charlotte Nelson of Moneyfacts. "With fees on mortgages ranging from nothing up to £2,794, and with the average sitting at £939, it is easy to see why opting for the wrong deal can be a costly mistake."
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