If you've only got a small deposit, and don't fancy paying a fee for your mortgage, your options are better than you may think!
The mortgage market appears to be a somewhat more welcoming place for borrowers with small deposits these days, with lenders regularly launching new deals targeted at this segment of the market.
Last week Woolwich launched a number of competitive new deals for borrowers with only a 10% deposit. One deal in particular caught my eye: a three-year fixed rate at just 4.99%, but which comes completely fee free.
When you consider the average arrangement fee for mortgages these days is the best part of £1,000, that’s a serious selling point, particularly for first-time buyers who have scrimped and saved just to get a deposit together, let alone having to worry about fees on top.
Paying a premium for skipping the fee
However, you will have to pay more – in the form of a higher interest rate – for the sake of skipping that fee.
The lowest rate I can find for buyers with just a 10% deposit on a three- year fixed rate comes from Leek United Building Society, which offers a deal at 3.99%, but with a fee of £995. So for £995 you can slice a full 1% off your interest rate.
Let’s see what a difference that can make on your monthly repayments. On a £150,000, 25-year mortgage, your monthly repayment on the Woolwich deal would be £886. However, on the Leek deal, those repayments would fall to £799, a full £87 a month difference!
Adding the fee to the mortgage
That’s all well and good if you have that spare £995 sitting around, but many buyers don’t and so instead opt to add the fee to the mortgage. You’re already borrowing £150,000, what difference is an extra £995 on top?
The trouble is that by doing this you actually end up paying far more than £995, as you will be charged interest on the fee just as with the rest of your mortgage debt.
Were you to do that in this example, the repayments on the Leek mortgage would rise to £804 a month. So still a fair bit cheaper than the Woolwich mortgage, then.
The middle ground
However, there is a middle ground between fees upwards of £1,000 and mortgages which don’t charge fees at all, and that’s deals which only charge a relatively small fee.
For example, if you’re after a five-year fixed deal and have a 15% deposit, the best fee-free deal comes from Barnsley BS, with a rate of 4.39%. However, if you want for the same lender’s fee-charging deal (at 0.25% of the advance, which works out at £375 on a £150,000 mortgage) you can shave 0.10% off the rate. That’s a difference of about £10 a month.
Getting the right mortgage
Those are just a couple of examples. In some cases, the difference between a fee-free deal and a fee-charging one is extremely small, in others it’s a little more pronounced. You need to sit down and go through the figures to work out which is the best deal for you, across both the short and long term.
And that’s where another fee-free option comes out on top – fee-free mortgage brokers! By having a chat with a top mortgage broker, you’ll not only get access to deals you may not be able to get hold of direct, but you’ll also get advice and guidance on the lenders most likely to want to lend to you.
You can pick the brains of our mortgage team over at our mortgage centre, whether over the phone, email, or via instant messenger. And their advice won't cost you a penny!
15 excellent fee-free deals
|
Lender |
Term |
Interest rate |
Maximum LTV |
|
Two-year fixed |
3.55% |
80% |
|
|
Two-year fixed |
3.59% |
85% |
|
|
Two-year fixed |
4.49% |
90% |
|
|
Three-year fixed |
3.69% |
80% |
|
|
Three-year fixed |
4.39% |
85% |
|
|
Three-year fixed |
4.99% |
90% |
|
|
Five-year fixed |
4.39% |
85% |
|
|
Five-year fixed |
4.49% |
90% |
|
|
Five-year fixed |
4.89% |
90% |
|
|
Two-year tracker |
3.34% (base rate + 2.84%) |
85% |
|
|
Two-year tracker |
3.49% (base rate + 2.99%) |
85% |
|
|
Two-year tracker |
5.79% (base rate + 5.29%) |
90% |
|
|
Lifetime tracker |
3.29% (base rate + 2.79%) |
80% |
|
|
Lifetime tracker |
3.79% (base rate + 3.29%) |
85% |
|
|
Lifetime tracker |
4.59% (base rate + 4.09%) |
90% |
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At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call freephone 0800 804 8045 or email mortgages@lovemoney.com for more help.
This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article.
Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.
Your home or property may be repossessed if you do not keep up repayments on your mortgage.