Three months on from the Bank of England’s base rate rise and mortgage rates still appear historically competitive.
But despite the average two-year fixed rate mortgage creeping up just 0.02 per cent this month, banks and building societies are finding other ways to take advantage of the currently high level of borrowers remortgaging to find a better deal.
While many lenders are cutting or freezing rates to appear as attractive as possible, arrangement fees are on the rise.
Data from financial information firm Moneyfacts revealed that average mortgage fees have increased by £15 since August to stand at £1,005 this month – the highest average recorded in more than five years.
Average two-year fixed rate mortgages crept up just 0.02 per cent this month to 2.52 per cent
Charlotte Nelson, mortgage expert at Moneyfacts, said: ‘It is disappointing news that the average mortgage fee is not only on the increase, but it is the highest it has been in over five years.
‘Providers are currently fighting among themselves to be seen as the lender offering the lowest rate on the market, all in a bid to attract borrowers who are considering remortgaging after the recent rate rise by the Bank of England.
‘However, the increase in the average fee is in direct response to these rate cuts, as lenders try and compensate these deals.’
There have been two interest rate rises by the Bank of England in the past year, with the base rate moving up from 0.25 per cent to 0.5 per cent and then 0.75 per cent.
The average two-year fixed rate only stands 0.16 per cent higher than it did in November 2017, increasing from 2.33 per cent to 2.49 per cent.
Nelson believes that increasing fees is a way for providers to recoup some of this extra cost while still appearing to be cheaper than their competition.
‘For the average borrower who remortgages every two years, the fees can soon add up and this additional cash could be better spent overpaying the mortgage,’ she said.
As an example of how deals with high fees and low rates can end up being more expensive, Yorkshire Building Society has two two-year fixed rate products available at 60 per cent loan-to-value, one with a fee of £995 at 1.34 per cent and one with no fee at 1.71 per cent.
On a £200,000 loan over 25 years the deal with the lower rate and £995 fee would cost £19,883 over the two-year deal period, while the higher rate of 1.71 per cent with no fee would cost just £19,674 over that time.
To find the best mortgage deals currently out there, you can use This is Money and L&C’s mortgage finder.
To figure out how much you will actually be paying, once fees and rates are taken into account, you can use our new and improved true cost mortgage calculator.
What are the best deals currently out there?
In a market where lenders are looking to hike fees and trim rates simultaneously, it pays to examine what’s really on offer when remortgaging.
Top of the fixed-rate table, when just looking at the cheapest rates, is a two-year fixed-rate deal from Skipton Building Society at 1.38 per cent with a £1,995 fee for those with a 40 per cent deposit.
Leeds Building Society also has a low fix of 1.39 per cent for two years, at 65 per cent loan-to-value with a £1,999 fee.
By comparison, Sainsbury’s Bank has a two-year fix also at 60 per cent loan-to-value at a higher rate of 1.47 per cent but with a fee of just £745.
On a £200,000 repayment mortgage over 25 years Skipton’s deal would be £8.41 cheaper a month than Sainsbury’s.
However, the total costs on the overall deal, including fees, is £1,048 more expensive on Skipton’s lower rate product.
Five-year fixes are now nearly as cheap as two-year fixes, so it makes sense to lock in for longer
Five-year fixes are nearly as cheap as two-year fixes
Five-year fixes have also climbed marginally to 2.94 per cent on average this month, but remain historically low.
In fact, the average five-year fix is now less than half a per cent more expensive than the average two-year fix, or 0.42 per cent.
The lowest rate five-year fixed rate deal out there is at 1.82 per cent from Skipton Building Society, which comes with a £1,995 fee at 60 per cent loan-to-value.
Halifax is offering a five-year fix at 1.88 per cent at 60 per cent loan-to-value, but with a fee of just £999.
With Brexit uncertainty and expected base rate rises in the coming years, it might be worth locking in for longer at a slightly higher rate. If you are unsure what to do, this is something to talk to an independent financial or mortgage adviser about
Buy-to-let rates keep falling
Buy-to-let mortgage rates remained in freefall this month as lenders tried to win new business while landlords exit the market.
Why has buy-to-let demand dropped?
The buy-to-let sector has been battered in recent years, with a series of tax and regulatory changes prompting landlords to sell up at a rate of nearly 4,000 homes a month.
The drop in demand has come as full tax relief on mortgage interest is withdrawn and replaced with a maximum 20% tax credit, and landlords now pay tax on their revenue rather than profit after mortgage costs.
In addition, the buy-to-let market has been hurt as stamp duty for new purchases was slapped with a 3 per cent surcharge back in 2016, making outlays for new investors considerably more expensive.
This means it is now far more expensive to both buy and run buy-to-let properties than it was two years ago.
The number of buy-to-let property purchases are falling following a string of tax and regulatory changes which have squeezed the sector, with figures from UK Finance showing an 11.1 per cent decline in purchases compared to last year.
In response the average five-year fix BTL mortgage rate has fallen to its lowest level ever on record, according to Moneyfacts.
The average rate now stands at 3.40 per cent, down from 3.55 per cent in April and 3.43 per cent last year, and a sharp drop from the rate of 3.77 per cent seen in October 2016.
For example, Sainsbury’s has a two-year fixed-rate BTL mortgage at 1.40 per cent with a £1,750 fee at 60 per cent loan-to-value, while for the same loan-to-value TSB has a two-year fix at 1.44 per cent with a £1,750 fee.
For the more popular five-year fixed rate deals, The Mortgage Works is offering a 1.99 per cent interest rate with a £2,335 scheme fee, for 50 per cent loan-to-value.
Virgin Money also has a five-year fixed rate at 2.13 per cent with a £1,695 with a maximum loan-to-value of 50 per cent.