Warning over true cost of cheapest ever mortgage

22 May 2015
Yorkshire Building Society (YBS) has launched the UK's cheapest-ever fixed-rate mortgage at 1.07% over two years, but it comes with one of the most expensive fees on the market. Homebuyers with a 35% deposit and those remortgaging with the same amount of equity are eligible for the deal, which comes with a £1,369 product fee. Only a handful of other lenders charge higher fees on their most competitive fixed-rate deals – including Chelsea Building Society, Norwich & Peterborough and Virgin Money, according to moneywise.co.uk/compare. On a 65% loan to value (LTV) home loan of £130,000 for a property worth £200,000, the YBS deal equates to mortgage repayments of £494.06 a month, or £13,226.55 over the fixed-rate period. These figures exclude the mortgage application processing fee of £130 and the £90 mortgage fee that becomes payable when the mortgage is repaid in full or if the borrower moves their loan to another lender. The overall yearly cost of the mortgage, stated as a percentage of the loan, is 4.5% APR. An early redemption charge will be made at 2% if the loan is halted before 31 July 2016. After that date the charge reduces to 1%. Overpayments of up to 10% a month, or annually, are allowed without charge, but above this level they will trigger the early repayment charge. While the 1.07% fixed rate will expire on 31 July 2017, after this date the mortgage will revert to the building society's standard variable rate, which is currently 4.99%, unless the buyer remortgages to a better deal.Get help finding the best mortgage for you Importance of switchingEarlier this month, figures released by surveying firm LMS suggested people are increasingly aware of the importance of switching their mortgage after fixed rates expire to get a better deal. More than two-thirds of those who remortgaged their properties in March did so in order to access lower mortgage rates. Its research also found that just 3% were incentivised by their existing lender to stay with them. Andy Knee, chief executive of LMS, said: "Savvy borrowers are shopping around for better deals and are clearly aware of the competitive offerings in the market." He added: "A gradual growth in the number of people remortgaging to access better rates is a promising sign that buyers are applying the same wisdom to their mortgages; however, there is still an element of complacency among those who expect competitive offers to last for a while yet. Although people are remortaging for the right reasons, they're clearly not remortgaging enough."

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