Many ‘best buy’ mortgages costing thousands more than higher rate deals
Many attractive low-rate mortgage deals are costing borrowers thousands of pounds more than deals with higher headline rates, according to the latest Mortgage Saver Review.
The study found that if the average borrower opted for the lowest two-year fixed rate deal on the market (Santander’s 1.09%), the mortgage repayments plus the total £1,534 upfront cost would cost them £13,759 over the two-year initial period In contrast, Danske Bank’s 1.36% deal, with no additional upfront cost, would cost a borrower £12,800 over two years – almost £1,000 less.
The pattern is the same in the five-year market. While Yorkshire Building Society’s 1.89% rate appears one of the best value deals on the market, the true cost to the average borrower would be £35,254 over five years. This is almost £1,300 more than the true cost of Nationwide’s five-year fixed rate of 1.99% (£33,958), despite the latter having a less attractive headline interest rate.
A leading two-year rate from Progressive Building Society and Hinkley and Rugby are both 1.89% yet the latter would cost the average borrower £1,411 more over the two-year initial period.
The new report calls for the industry-wide adoption of true cost, after revealing that many of the lowest-rate deals on the market come with high upfront fees buried in small print, misleading customers.
Trussle CEO and founder of online mortgage broker Ishaan Malhi said: “We aim to enhance the home ownership experience in every way possible. One of the first steps in this mission is to tackle the lack of transparency which is currently hindering the very beginning of the mortgage process and causing undue stress for borrowers.
“The way that mortgages are being displayed is at best inconsistent and at worst misleading. Borrowers are enticed into making decisions based on low headline rates rather than true cost, and can end up paying out more than they would on other available deals. Simply put, mortgage rates are overrated. From our research, we know that the vast majority of borrowers want lenders to roll all charges and incentives into a true cost figure, and we’ve seen just how useful it would be for people to have this figure to hand when they’re choosing a mortgage.
“Displaying the true cost figure is one of the four recommendations we’ve made within our Mortgage Switch Guarantee proposal, put forward to improve the switching process for borrowers. If lenders can agree on a method for calculating the true cost of deals and make this information clearly available to borrowers, the market would become far more transparent and would function better for everyone as a result.”