As house prices rise, mortgage availability increases and rates drop to historical lows, the market is beginning to look healthy for home buyers. However, borrowers are advised to take extra caution as many lenders are partaking in a new trend which involves drawing buyers in with ultra-low headline rates, only to apply eye-watering fees which entirely outweigh any benefits.
Many homeowners have already found themselves thousands of pounds worse off after being lured into ‘disguised’ deals. Shockingly, recent research from The Sunday Telegraph found that many borrowers would need to take a mortgage of £500,000 or greater before they could reap any benefit from low headline rates.
Research has found that deals with a higher rate and lower product fee often work out to be more competitive than those which appear attractive in comparison, particularly as the lenders will often limit the amount which can be borrowed as part of the deal.
Fixed rate mortgages are the most common form of disguised deals, and now account for 80% of new mortgages. The introduction of the government’s Funding for Lending Scheme in August has allowed lenders to make significant cuts to their rates, particularly where the two year and five year fixed rate products are concerned. However, whilst the lowest rates on the market have dropped below 1.5% for 2 year products, and below 3% for five year products, research has found that the most attractive rates rarely work out to be the most competitive option due to the hefty arrangement fees which apply.
A prime example of the ‘disguised deal’ trend, West Bromwich Building Society recently reduced its two-year fixed lending for loans up to £250,000 from 2.09% to 1.48%. The reduction put the rate as the lowest on the market, but with a hefty £2495 fee, it was actually found to be the most expensive deal in comparison to other products with higher rates and lower fees for loans up to the value of £250,000.
Taking out the maximum loan size of £250,000, the Building society would charge a total of £26,435 over the duration of the 1.48% two year fixed term. If the borrower opted for a higher rate Yorkshire Building Society deal, where the mortgage is fixed at 1.66% with a substantially smaller fee of £975, the total cost would be £25,425, which would save a total of £1,010.
Susan Grant, a Senior Mortgage Consultant at Contractor Mortgages Made Easy commented “The current market is a minefield of low rate products, and it can be easy to overlook costs such as booking fees, valuation costs and legal charges. With so many ‘disguised deals’ appearing on the market, seeking professional guidance to avoid being caught out has never been more important.”
Despite the emerging trend for disguised deals, research by contractor friendly mortgage lender Halifax has confirmed that mortgages have reached their most affordable levels since 1999. Repayments for those switching to the best deals or getting a foot onto the property ladder now account for just 27% of household income, a vast improvement in comparison to the height of the market, when mortgage costs accounted for a hefty 48% of household income.
Susan Grant said “Fixed rates are only going to go up from here, so contractors are advised to move now instead of hanging around for lower rates.”
Article By: Taj Kang, Business Development Director at Contractor Mortgages Made Easy
Media Contact: Raman Kaur, Public Relations Manager
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