Home owners choosing a mortgage deal with one of the UK’s biggest six lenders could save an average of £390 by ignoring their lowest rate, new research suggests.
They could save this money by opting instead for a higher rate product with fewer additional charges, according to the study from online mortgage broker Trussle.
The way that mortgage deals are advertised by lenders, and sorted by many comparison sites, encourages borrowers to prioritise headline interest rates and many borrowers do not consider upfront costs, says the firm.
The research suggests that the benefit of eye catching low rate deals is often wiped out by high upfront costs. Confusingly for prospective customers, the actual best value deals offered by the lenders, once all fees and incentives have been accounted for, come with significantly higher headline interest rates, which make them seem less attractive.
For example, if a customer was to opt for the lowest two year fixed rate deal offered by Barclays at 1.39% they would pay £13,709 in capital repayment, interest and charges over the two year introductory period. This is £649 more than they would pay if they chose Barclays 1.63% rate deal.
Similarly, a Santander customer who opts for the bank’s lowest rate deal of 1.29% would pay out £577 more over the introductory period than if they chose Santander’s 1.64% deal, according to Trussle.
The calculations are based on someone getting a mortgage of £135,574, which equates to a 60% loan to value ratio on the UK’s average house price of £225,956.
The report says that with Lloyds Bank, the Nationwide Building Society, the Royal Bank of Scotland, Santander, Barclays and HSBC the difference in true cost between each bank’s lowest rate deal and their best value deal averages at £390.
Some 68% of new mortgages approved in 2017 were with these lenders, that’s just over a million in total and the report says that if each of these million customers were to choose a two year fixed deal based on how low its rate was, rather than its true cost over the introductory period, they would collectively lose out on £405million.
‘The big xix lend to more than two thirds of UK mortgage borrowers, and have a huge amount of influence on people’s dreams of owning a home. They should be the ones leading the charge for transparent mortgage pricing, instead of the unfair promotion of low rate products that come with high fees,’ said Ishaan Malhi, Trussle chief executive officer.
‘The market is confusing people. It’s time lenders, brokers, and comparison sites club together behind true cost for the sake of home owners across the country. This is one of the four recommendations we’ve made within our proposal for a Mortgage Switch Guarantee, which promises to improve the switching process for borrowers,’ he explained.
‘If the big lenders can make this information clearly available to borrowers, home owners will finally be able to secure a mortgage, confident they’ve made the right decision,’ he added.
