Hidden fees cost borrowers an extra £900 on 'best' mortgage deals

2 August 2018
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Homeowners choosing the lowest rate mortgage deal with one of the UK’s big six lenders could pay almost £900 extra once fees and charges are factored in, according to analysis of fixed deals.

Online mortgage broker Trussle looked at the lowest rate deals from Barclays, HSBC, Lloyds Bank, Nationwide Building Society, RBS, and Santander and then analysed their true cost, accounting for all fees and charges including capital and interest repayments, fees and incentives due over the initial period of the deal.

In almost every case, the supposed lowest rate deal was not the best choice for borrowers.

The average ‘true cost’ across all big six lenders, which account for 68% of the mortgage market, was £430 extra. But in some cases consumers were being hit with added extras costing up to £900 over the mortgage term.

Two-year fixes

Taking the example of someone applying for a mortgage of £136,144, which equates to a 60% loan-to-value ratio on the UK’s average house price of £226,906, Trussle found that borrowers would pay far more.

At Nationwide Building Society, the lowest two-year fixed rate at 1.54% would cost a borrower £14,213 over the two-year period including all fees. But consumers could save up to £874 by opting for a deal from Nationwide with a higher interest rate at 1.94% but lower fees.

Similarly, Santander’s lowest two-year fixed rate at 1.44% would cost £14,485 in the introductory two years, but choosing the bank’s 1.89% deal, which has lower charges, could save a borrower up to £811.

Five-year fixes

When it comes to five-year fixes, the figures are not much better. For example, Nationwide’s lowest rate deal 2.09% would see borrowers paying £693 more over the fixed period than if they chose the same lender’s 2.29% deal.

Meanwhile, a customer opting for HSBC’s lowest 1.89% deal would pay £234 more than if they chose the bank’s 2.09% deal with lower fees.

In its November 2017 study of mortgage borrowers, Trussle found that fewer than one in three (30%) understand all the information provided by lenders when considering their mortgage deal, while just under one in 10 (9%) feel that deals hide important information. Worryingly, less than half (44%) consider upfront costs when choosing their mortgage.

Ishaan Malhi, chief executive of Trussle, says: “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.”

How the lowest rate deal can end up costing borrowers far more over the introductory period

LenderInitial rateTrue cost over initial two-year periodDifference in cost over introductory period
Nationwide1.54%£14,213£874
Nationwide1.94%£13,339
Santander1.44%£14,485£811
Santander1.89%£13,674
LenderInitial rateTrue cost over initial five-year periodDifference in cost over introductory period
Nationwide2.09%£36,066£693
Nationwide2.29%£35,373
HSBC1.89%£35,216£234
HSBC2.09%£34,982

Source: Trussle, 15 June 2018

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