The average two-year fixed mortgage rate has fallen from 2.53 per cent in July 2018 to 2.49 per cent this month, according to research from Moneyfacts.co.uk. This is despite the Bank of England raising base rate by 0.25 per cent to 0.75 per cent on August 2, last year. The financial product price comparison site also said that its research has seen the average product fee for a maximum 65 per cent loan-to-value (LTV) tier had fallen the greatest in the past year. The figures show a £262 drop since July last year, from £1,143 to £881 this month.
The calculations of the average produce fee exclusives products which don’t have a fee.
The average product fee at the highly competitive maximum 95 per cent LTV tier also declined, by £46 over the past 12 months.
Darren Cook, Finance Expert at Moneyfacts.co.uk, said: “The mortgage market has recently boasted some of the lowest mortgage rates on record, which is fantastic news for borrowers, but our latest research into the average product fee charged in the popular two-year fixed rate market has shown that this too has fallen over the past 12 months.
“More significant still is that most LTV tiers – with the exception of the 70 per cent, 60 per cent and up to 55 per cent LTV tiers – have seen fees fall, as lenders continue to look for additional ways beyond rate alone to compete.
“Potential first-time buyers who are likely to be looking at higher LTV mortgages will be pleased to see that two-year fixed rate products at maximum 95 per cent LTV not only have one of the lowest average fees at £914, down £46 from last year’s average, but the average interest rate for this product has fallen from 3.98 per cent 12 months ago to 3.25 per cent today.
“Furthermore, the number of fee-free deals at maximum 95 per cent LTV has risen from 62 to 88 products over the past year, which constitutes 72.13 per cent of all products within this sector.”
Mr Cook also warned that first-time borrowers, current borrowers, and people looking to move house should consider one particular aspect of their mortgage.
This is the true cost of the mortgage itself.
The true cost of borrowing takes into account the loan amount, cost of any fees, frequency of repayments, the length of the borrowing term, and the rate of interest a person will be charged, thus working out the total amount a borrower will have to pay the lender.
Mr Cook said: “It is imperative that first-time borrowers, existing borrowers looking to switch deals and those moving house look at the true cost of the mortgage, taking into account any fees and incentive packages, to ensure that they get the most cost-effective deal.
“For instance, if a borrower were to opt for a two-year fixed rate repayment mortgage of £150,000 over a term of 25 years at an initial rate of 2.15 per cent with no product fee, this will amount to a true cost of £15,523.02 over the two years, whereas if they instead opt for a deal that offers a lower rate of 1.72 per cent, but has a £1,000 fee, the true cost over two years would be £249.78 higher at £15,772.80.
“However, if the loan amount increases to £250,000, still on a repayment-only basis over a 25-year term, a rate of 2.15 per cent with no product fee will amount to a true cost of £25,871.69 over two years, while a rate of 1.72 per cent with a £1,000 product fee it will amount to a true cost of £25,561.33, which is £310.36 less.
“Not only does this emphasise that the best rate alone does not always mean the borrower will be getting the best deal, but it also shows that the best deal for one borrower may not work out the most cost-effective option for another, so it’s always best to do your calculations before taking on the loan.”
There are a number of types of mortgage options, and this includes fixed rate deals, stepped rates, and tracker mortgages.