Despite the Bank of England raising base rate by 0.25% to 0.75% on 2 August 2018, competition among mortgage providers has seen product fees and the average 2-year fixed mortgage rate fall, data from Moneyfacts has shown.
The average 2-year fix has dropped from 2.53% in July last year to 2.49% this month.
In turn, this healthy competition seems to have also resulted in a fall in mortgage product fees at most loan-to-value (LTV) tiers as well. The average product fee for maximum 65% LTV has fallen the greatest – recording a £262 drop since July last year to £881 today.
Darren Cook, finance expert at Moneyfacts, 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 2-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%, 60% and up to 55% LTV tiers – have seen fees fall, as lenders continue to look for additional ways beyond rate alone to compete.”
Meanwhile, the average product fee at the highly competitive maximum 95% LTV tier also fell, declining by £46 over the past 12 months to stand at £914.
Cook added: “Potential first-time buyers who are likely to be looking at higher LTV mortgages will be pleased to see that 2-year fixed rate products at maximum 95% 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% 12 months ago to 3.25% today.
“Furthermore, the number of fee-free deals at maximum 95% LTV has risen from 62 to 88 products over the past year, which constitutes 72.13% of all products within this sector.
“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 2-year fixed rate repayment mortgage of £150,000 over a term of 25 years at an initial rate of 2.15% with no product fee, this will amount to a true cost of £15,523.02 over the two years.
But if they instead opt for a deal that offers a lower rate of 1.72%, 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% with no product fee will amount to a true cost of £25,871.69 over two years, while a rate of 1.72% with a £1,000 product fee it will amount to a true cost of £25,561.33, which is £310.36 less.
Cook said: “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.”