‘Cheapest’ rate could bump up your mortgage by £600-plus

It may be tempting to commit to the lowest repayments, but we should be searching for other ways to save cash, says Sam Meadows

Chasing the lowest mortgage rates could cost you more than £600 after costly fees and charges are taken into account. Research by online broker Trussle shows that the lowest two-year fixed-rate mortgage doesn’t represent the best value for money at any of Britain’s biggest lenders. In one case the “cheapest” rate costs £650 more over the course of the two years.

The figures come as homeowners rush to take advantage of the current climate of cheap borrowing and remortgage amid the threat of rising interest rates.

Figures released this week by UK Finance, the banking trade body, show remortgaging activity in January was 10pc higher than the previous year, with £21.9bn borrowed.

Many expect Bank Rate, currently 0.5pc, to increase in 2018. Members of the Bank of England’s Monetary Policy Committee, which determines the rate, have dropped heavy hints that it will rise in May. And many housing experts expect a further increase before the end of the year.

If Bank Rate rises to 1pc, borrowers on their lender’s variable rate could pay as much as £500 more every year. But those looking to dodge the increases would do well to check the small print in their mortgage offer. The Trussle research shows that even though a headline rate might look attractive, when other fees and charges are accounted for it could cost hundreds of pounds more over the fixed-rate period. “Arrangement fees” can be as much as £2,000.

Looking at two-year deals – by far the most popular type of mortgage – Barclays’ lowest rate is £649 more expensive than its best value deal, while for Santander the difference is £577. Royal Bank of Scotland has the smallest gap of £100.

Ishaan Malhi, of Trussle, said mortgages should be displayed in terms of “true cost” to the consumer rather than in order of cheapest rates, as is usually the case on comparison tables. “There’s one cost of getting a mortgage and that is the true cost,” he said. “Borrowers shouldn’t be blinded by cheap rates.”

Nationwide’s lowest rate is £384 more expensive than its best value deal, Lloyds’ is £331 and HSBC’s £299.

Aaron Strutt, of Trinity Financial, the brokers, said: “There is so much choice now and so many combinations of rates and charges. You always need to check the overall cost.

“A higher rate will mean higher monthly payments, though, and some people will just want the lowest monthly outgoings, and if it costs them a little bit more overall they won’t be

THE TRUE COST OF FIXING Lender

Lowest rate 1.33pc 1.29pc

Barclays Santander Nationwide 1.39pc Lloyds 1.79pc HSBC 1.39pc RBS 1.38pc