The rate is not the only thing borrowers should look at when choosing a mortgage deal, experts have warned
Mortgage holders renewing their fixes this year face paying far higher upfront fees as well as higher rates than they did on their previous deals, analysis has revealed.
In the past five years, the average product fee on a mortgage has risen from £1,040 to £1,129, according to figures from Moneyfacts.
It comes as the average mortgage rate has more than doubled in that time as well.
Five years ago, the average rate of a deal with a fee was just 2.49 per cent, but now it sits at 5.31 per cent. Costs have got far more expensive since the Bank of England has upped its base rate from a record low of 0.1 per cent – which it hit back in March 2020.
It means that those who signed five-year fixes in 2020, when rates were still low, face a double whammy of higher costs this time around.
The number of deals offering some sort of cashback incentive has also fallen, from 31 per cent of mortgage offers in March 2020 to 22 per cent today.
Experts said that lenders were hiking their fees to try and keep rates as low as they could.
Lewis Shaw of Shaw Financial Services said: “There has been an increase in the cost of some booking fees and it is driven by lenders trying to subsidise headline rates.
“Alongside this, many lenders that did offer cashback have lowered the amount payable or scrapped it altogether in an attempt to keep fixed rates as low as possible.”
Mortgage fees are a charge levied upfront and paid in one go, when someone takes out a mortgage.
These fees are different to the interest rate on the mortgage, which governs the monthly fee the borrower pays.
Nick Mendes of John Charcol brokers said borrowers should view both costs side by side when looking at a mortgage deal.
“Borrowers should focus on the total cost of the mortgage rather than just the headline rate, as a lower rate with high fees may not always be the best value,” he said.
He said a deal on the market from Santander, which offered a low rate but a £1,999 fee, demonstrated this.
The bank launched a two-year mortgage fix under four per cent – but hefty fees mean that it may not be worth it for many customers. The deal is set to be removed from the market from Tuesday.
Rachel Springall, financial expert at Moneyfacts, said: “Borrowers who locked into a cheap fixed rate in 2020 and are looking to refinance will find mortgage fees have been on the rise. Outside of headline-grabbing low rates, borrowers need to check the overall cost of any mortgage, which includes any fees or cost-saving incentives.
“The best deal depends on someone’s circumstances and how much they need to borrow; someone with a larger debt would typically chase a lower rate, whereas those looking to avoid upfront costs would consider fee-free deals and incentives.
“The lowest fixed mortgages on the market typically charge upfront fees of around £1,000, or even up to £2,000, so a mortgage with a slightly higher initial fixed rate and lower product fee could be a better choice.”