How the 'cheapest' mortgage deal could cost you more in the long run

New research by online mortgage broker, Trussle, has shown that homeowners who opt for a mortgage with one of the 'Big Six' lenders could end up paying nearly £900 more by going for the product with the lowest rate.

Related topics:  Finance
Warren Lewis
2nd August 2018
new cash

Trussle compared the lenders' lowest rate deals to their best deals by true cost, accounting for all fees and charges. In almost every instance, the lowest rate deal is not the most favourable for borrowers.

On June 15th, Nationwide Building Society’s lowest two-year fixed rate (1.54%) would have cost a borrower £14,213 over the two-year introductory period, when all fees and incentives are considered. However, the same homeowner could have saved up to £874 by choosing a deal from the same lender with a higher interest rate (1.94%) but lower fees.

Meanwhile, Santander’s lowest two-year fixed rate (1.44%) would have cost £14,485 over the first two years, but a borrower could have saved up to £811 by choosing the bank’s higher rate deal of 1.89%, which comes with lower charges.

Trussle's calculations are based on someone getting a mortgage of £136,144, which equates to a 60% loan-to-value ratio on the UK’s average house price of £226,906.

The difference in true cost between each bank’s lowest two-year fixed rate deal and their best value deal averages at £430. By choosing a two-year fixed product based on headline rate, rather than true cost, their one million new mortgage customers each year could collectively be losing out on over £444 million, up from the £405 million first reported by Trussle in March.

The picture is much the same in the five-year fixed market. As of June 15th, a Nationwide customer who opted for the bank’s lowest rate deal of 2.09% would pay £693 more over the initial period than if they chose Nationwide’s 2.29% deal. Likewise, an HSBC customer could save £234 by choosing the bank’s 2.09% product rather than its lowest 1.89% deal.

Ishaan Malhi, CEO and founder of Trussle, commented: “The focus should always be on true cost - the interest rate plus associated fees - when comparing mortgage deals. Too often, borrowers are lured into making a decision based on headline rate alone and end up paying hundreds of pounds more in unexpected charges than they would on other available deals.

The Big Six have a huge amount of influence and at the moment, they are contributing to the already confusing process of securing a mortgage. Something needs to change to give borrowers more transparency. It’s time that lenders, brokers and comparison sites start displaying true cost alongside deals. By making this information clearly available to homeowners, the market would become far more explicit and would work better for everyone as a result.”

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