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Mortgage seekers advised to look beyond the cheap headline rates

Your Money
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Your Money

The number of mortgages has increased by 34% since April 2012 with fixed rate and tracker mortgage rates falling, but consumers should be vigilant over high fees.

According to research by MoneySupermarket, the number of mortgages available for borrowers has increased from 2,458 to 3,288 products since April 2012, when Funding for Lending came into force, with the total number of products available at the highest levels since August 2011.

MoneySupermarket says that although falls in rates should be welcome, this is often being offset by the rise of the cost of fees with average total fees for a two-year fixed mortgage increasing from £1,170.50 to £1,393.17, a 19% increase since April 2012. 

The average fee on five-year fixed rate mortgages has risen by 22%, from £996.83 to £1,218.13.

As a result, anyone looking for a mortgage needs to make sure they do not overlook the impact of the fee and work out the total cost of borrowing, rather than focusing on the headline rate alone.

Products with the lowest headline rates are not necessarily the best value over the term of the deal: once fees are factored in, a product with a slightly higher rate but lower set-up costs may actually prove cheaper.

Clare Francis, mortgage expert at MoneySupermarket said: “The thing to watch out for is the set up costs. Some of the lowest rates have very high fees.

“It’s very easy to be attracted by low headline rates when looking at mortgages, but you must also factor in the fees you’ll be charged to take the mortgage out. Set-up costs can vary greatly between providers so taking the time to work out the total amount you have to repay over the term of the offer is essential.

“Think about whether you want a fixed or variable rate deal, and if you do opt for a variable rate mortgage you need to ensure that you will be able to afford your monthly repayments if and when interest rates do rise as they won’t stay at this level forever.”