Fancy a new mortgage? Run your eyes down the best-buy tables and you might think it rather a good idea. After all, they look pretty cheap. Nationwide has just launched the cheapest ever mortgage rate for those with only a 5% deposit, at 2.5% (as part of the Help to Buy scheme). First Direct has a five-year fix at 2.49% and Tesco appears to have taken competition to an extreme with a two-year fix at 1.74%.
However, even at that price it isn’t winning the rate war: Chelsea Building Society has a two-year fix for you (assuming you have a completely clean credit rating, of course) at 1.69%.
Overall, says Lucy Warwick-Ching in the Financial Times, thanks to the subsidy provided by the Bank of England’s Funding for Lending scheme, the average cost of a two-year fix has come down from 4.21% to 3.28% in the last year, while that for a five-year fix has fallen from 4.67% to 3.84%. Hooray.
However, if you look a little closer you will see that – inevitably, given that we are dealing with the British financial services industry here – none of these deals are as cheap as they sound. The average ‘booking’ fee on a two-year fix is now £1,393 with some coming in way above that. The Chelsea two-year fix mentioned above comes with a £1,675 upfront fee, for example.
That makes it much less competitive than it sounds. So much so, says Martin Lewis on Moneysavingexpert.com, that anyone borrowing less than £220,000 on a repayment basis for 25 years would be better off bypassing it and perhaps looking for a lower fee mortgage even if it comes with a higher rate.
Calculations from John Charcol for The Sunday Times come to a similar conclusion, by comparing the Chelsea offer with one from Norwich and Peterborough that comes with a headline rate of 2.24% but a much lower fee – £294. Those borrowing more than £170,900 will be better off with Chelsea. Those borrowing less will be better off with Norwich and Peterborough.
You will be shaking your head sadly by now – and with good reason. There is a fundamental disconnect in the financial industry between client and provider. All most of us want is a transparent and easy way to compare the prices of financial products. All our providers want is to avoid just that – the more confusion they create, the more likely they are to be able to keep making supernormal profits indefinitely. It keeps us all in a constant state of war, trying to work out where the catches in our products are. And it’s very boring (unless you are ever the recipient of a supernormal bonus, of course).
However, one piece of good news is that Moneysavingexpert.com has on its website ‘The Ultimate Mortgage Calculator’, a nifty gadget that allows you to compare the cost of mortgages, including their fees, over various time frames. A nice weapon to have in your armoury if you are in the market for a new mortgage.