Increased competition between lenders has seen the number of
fee-free fixed rate mortgages more than double over the past twelve months.
According to recent data from Moneyfacts, there were 556
fee-free deals just over a year ago, compared to 1,162 by the end of 2016.
Although the number of fee-free deals has increased, average
fixed rate fees have gone up by £30 from £954 to £984 over the past year. The
average two-year fixed rate, however, has fallen from 2.67% to 2.34% in the
last 12 months, which suggests some lenders are introducing lower rates but
with higher fees.
Fee-free mortgages usually have slightly higher rates than
those which do charge a fee, but they often still work out to be more
cost-effective overall once fees are factored in.
Calculations show that borrowers with a 25% deposit opting
for the lowest two-year fixed rate deal with a fee could be more than £1,000
worse off than if they’d gone for a deal with no fee.
It’s important that when comparing deals, borrowers always
look at the total cost, rather than just the headline rate of interest charged.