Over recent months, the race to top the mortgage ‘best buy’ tables has been intense. As lenders compete with one another and jostle for mortgage rates market share the cost of large mortgages has fallen sharply.
But, are mortgage rates bottoming out? With some fixed mortgage rates reaching as low as 1.69 per cent, it’s clear that there’s not much further for rates to fall. So, we look at whether mortgage rates have fallen as low as they can go and the tactics that lenders are using to keep their deals in the ‘best buy’ tables.
Lower rates and higher fees keep lenders in the ‘best buy’ tables
The Independent recently reported that ‘there’s no let-up in the quest for new mortgage business, with lenders scrapping harder than ever for best buy recognition.’
In the last couple of weeks alone, the Chelsea Building Society has launched a two year fixed rate deal at 1.69 per cent while Tesco has launched a range of aggressively priced products starting at 1.74 per cent. Both deals are available to a maximum 60 per cent loan to value and they carry fees of £1,545 and £1,495 respectively.
“There’s strong competition in the mortgage market right now which means lenders remain keen to appear in the ‘best buy’ tables,” says Islay Robinson, CEO of London mortgage broker Enness Private Clients. “What we have seen over recent months is that mortgage products have gradually become cheaper but the associated fees have crept up.
“Shaving a few basis points off the interest rates will keep a lender’s product at the head of the best buy tables and they can make their money back by charging a higher arrangement fee,” adds Mr Robinson, the large mortgage expert.
While rates continue to fall, the pace of the cuts seems to be slowing. The Independent says that while the cost of home loans seems to be edging lower week by week, the rate cuts appear to be getting much smaller. It adds ‘it could be that mortgage rates are getting close to bottoming out.’
Borrowers urged to compare mortgage rates and fees
“For many borrowers it is important to compare the total cost of deals rather than simply concentrating on the headline interest rate,” advises Mr Robinson from Enness Private Clients. “In many cases, if you are looking to borrow up to £150,000 or £200,000 it can pay to take a higher interest rate and pay a lower arrangement fee.
“However, for many high net worth mortgage clients the opposite is true. Falling interest rates and higher fees have actually benefited large mortgage clients. That’s because the savings they make through lower interest rates outweigh a couple of hundred pounds in additional fees.
“However, with thousands of mortgage products to choose from, working out which is the best option can be tricky. That’s why we always advice clients to speak to a professional before making any decision,” he adds.
The Independent echoes this sentiment. It concludes: “It’s important to employ the services of an independent mortgage professional to crunch the numbers and find the most suitable product for your particular circumstances.”