Fierce competition is pushing the real cost of our mortgages down – and the Bank of England's shock rate cut is likely to drive costs down further still.
When it comes to mortgages, there’s more that goes into working out what it will really cost you ‒ and therefore how good it is ‒ than the interest rate.
For example, most mortgages come with a product or arrangement fee, a non-refundable charge simply for taking out the loan.
And these product fees can set you back a pretty penny, typically around £1,000.
But even when you take into account the ‘true’ cost of a mortgage, encompassing both the cost of paying off the loan and the fee, home loans are getting cheaper.
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What am I REALLY paying?
Financial information site Moneyfacts has dug into what the ‘true’ rates are for two‒ and five-year fixed-rate mortgages on offer from the ten biggest lenders in the country.
And encouragingly, borrowers are enjoying an even better deal today than at the start of the year.
The table below details the true rates charged on a typical 75% LTV two‒ and five‒ year fixed-rate mortgage by each of the ten biggest lenders, and how this has changed since January.
|
Lender |
Average two-year ‘true’ rate |
Change since January |
Average five-year ‘true’ rate |
Change since January |
|
Barclays |
1.96% |
-0.12% |
1.92% |
-0.05% |
|
Coventry BS |
1.78% |
-0.14% |
1.87% |
-0.14% |
|
HSBC Group |
1.91% |
-0.04% |
1.73% |
-0.03% |
|
Lloyds Banking Group |
2.25% |
-0.02% |
2.37% |
No change |
|
Nationwide BS |
1.83% |
-0.03% |
1.95% |
-0.06% |
|
Royal Bank of Scotland Group |
2.04% |
No change |
2.23% |
No change |
|
Santander |
2.09% |
+0.02% |
2.03% |
-0.02% |
|
TSB |
1.93% |
No change |
1.89% |
No change |
|
Virgin Money Group |
2.03% |
-0.04% |
2.30% |
No change |
|
Yorkshire BS Group |
2.01% |
-0.01% |
1.98% |
-0.03% |
Now, a 0.14% drop might not seem like much, but it will make a noticeable difference to how much that loan sets you back overall (or until you remortgage again).
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Why rates are falling
It might seem incredible that rates have continued to fall, given they were already at historically low levels.
But the truth is that the mortgage market is incredibly competitive at the moment, with lenders pretty desperate to attract borrowers. And it means that they are accepting ever-smaller margins in order to bring those borrowers in, hence the rates continuing to drop.
This level of competition has pushed out some lenders, who simply weren’t willing to accept those tiny margins any longer, with both Sainsbury’s and Tesco exiting the market last year.
And given the Bank of England has now announced an emergency cut in the Base Rate, from 0.75% to 0.25% ‒ equalling the previous record low ‒ we may see these true costs fall further still in the months to come.
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Biggest isn’t always best
An important point to make here is that this study looks solely at the 10 biggest lenders, or at least the banking groups that they are included within.
And while they lend out a huge amount each year, there are plenty more lenders operating in the market who will offer even better value for certain borrowers.
That’s why it’s so important that you don’t just limit yourself to dealing with the big names, the ones you’ve heard of that probably have a presence on your local high street.
This is even more important if you have slightly complex finances, perhaps because you’re self-employed, as the high street lenders are not exactly renowned for their flexibility.
In these cases going to a specialist lender, which takes a more hands-on approach to the underwriting of your loan, may be a better move.
This is where a mortgage broker can prove invaluable.
Not only will they be armed with the knowledge around which lenders are most likely to be keen to offer you finance, but they will also have access to lenders and products that you can’t get as a direct borrower.