Choice of fee-free mortgages quadruples in five years
Over the last few months, lenders have fallen over themselves to offer better and better mortgage rates. Banks and building societies have offered ever cheaper mortgage deals in an attempt to top the 'best buy' tables and this has driven interest rates to record lows.
Now, new research has found that lenders may be trying to differentiate themselves from each other in areas other than simply the headline rate. Fee-free mortgage deals are making a comeback and the number of fee-free products has more than quadrupled in the last five years.
Ignoring fee-free mortgage options could be a 'costly mistake'
Research from a leading data analyst has revealed that a quarter of the UK's mortgage market now offer 'fee-free' mortgages, meaning that the number of deals with no charges has risen fourfold in the last five years.
Moneyfacts say that there are now 902 fee-free mortgages available in the marketplace, up from just 220 deals available in 2010. The analyst says that “this suggests that providers are increasingly keen to compete in other areas asides from the traditional headline rate in order to attract and retain mortgage customers”.
Charlotte Nelson, finance expert from Moneyfacts, says: "Too many borrowers still focus their initial attention on getting the lowest possible rate, without taking into consideration the true cost of the deal, where fees can have a significant impact.
"It could be a costly mistake for borrowers to ignore the fee-free options, as by the end of a mortgage term they may find that they have thrown away money that would have been better spent paying off the mortgage."
Moneyfacts also points out that the interest rates charged on fee-free deals are no longer significantly higher than on other products. For instance, the average two-year fixed mortgage with a fee has an interest rate that is only 0.20% lower than the average two-year fee-free fixed deal (2.71% compared with 2.91%).
Free-free mortgages can offer a better overall deal
Newspapers and 'best buy' tables often focus on the cheapest mortgage rates which mean that fee-free deals are often less visible to consumers. However, in many cases they can be the most appropriate product, says Keith Osborne, editor of new homes portal Whathouse.com.
"Low-rate deals that you might see advertised online can often seem appealing but many have substantial fees and charges. This can make an attractive looking deal much more expensive than other options, particularly for smaller mortgages,” he says. "Fee-free deals can offer a much better overall deal, and that's why I would always urge borrowers to consider the overall cost of a mortgage product rather than just concentrating on the headline interest rate."
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