Choosing a mortgage is a complicated business.There are hundreds if not thousands of deals on offer, each with its own bells and whistles – cheap rates, no fees, free valuations, free legals and cashbacks.
But opting for the cheapest rate or the highest cashback offer isn’t always going to mean you pay the lowest amount back to your lender.
And so-called ‘fee-free’ deals at a higher rate might not be entirely free of fees in reality.
The hidden costs of valuation, legal fees and exit or redemption fees can tot up and end up adding hundreds of pounds to your overall repayments.
For example, a first-time buyer looking for an 85 per cent loan-to-value mortgage on a £250,000 house can get a 1.94 per cent rate fixed for two years from two lenders.
Nationwide charges a £999 product fee, while TSB charges £4 less at £995. So far, so comparable but here is where it gets complicated
Nationwide offers a free valuation, whereas if you opt for TSB you’ll need to stump up £400 to pay for a straightforward mortgage valuation that tells you nothing about the condition of the property you’re about to purchase.
The Nationwide deal also offers £500 cashback – which could be used to pay off some of the stamp duty or put towards legal fees – while TSB offers none.
Add to that the redemption or exit fee: Nationwide will charge £65 when you remortgage, exit the deal or repay the loan and TSB, for the same service, will charge you £265.
Mark Wilson, an independent mortgage adviser at 360 Mortgages, said: ‘This type of comparison really highlights the need to think about extra costs – something that a straightforward online search for the best mortgage rate won’t take into account.
‘Buyers will need to think about what matters most to them – is it the monthly repayment amount, minimising upfront costs or reducing the overall amount paid back to the lender over the lifetime of the deal?
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‘Understanding these nuances isn’t easy and the details on how much lenders charge are often hidden away in the small print – it’s for this reason that advisers can really make a difference and ensure borrowers get the right deal for their circumstances.’
Even on a relatively simple mortgage the difference hidden charges can make is significant but it becomes even more relevant if you want to upgrade from a basic mortgage valuation to a homebuyer report or buildings survey.
Additional valuation costs
On the deals above, Nationwide will charge £200 for a homebuyer report and mortgage valuation, giving prospective purchasers more detail on the property’s condition.
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TSB meanwhile will charge £750 for an identical service. The cost of a full buildings survey, where a surveyor assesses the condition of the property thoroughly and advises on what work should be done, will vary depending on which surveyor is instructed but it can be up to £2,000.
Exit fees – rarely mentioned by lenders when they’re touting for business – can also bump the cheapest deal off the top spot.
For example, Halifax charges 2.14 per cent on a two-year fixed rate at 85 per cent LTV with a £999 product fee and cashback of £2,000 meaning monthly payments are £915.24.
The total to pay over the two years is £21,690.
Nationwide, meanwhile, charges 1.94 per cent for the same deal with a £999 product fee and £500 cashback. That brings its total to pay to £21,967 – more than the deal from Halifax despite its lower rate.
But it gets even more complicated: Nationwide charges £65 to redeem the loan at the end of two years but Halifax will bill you £665, completely wiping out the overall saving made on the cashback.
Charlotte Nelson from personal finance website Moneyfacts said: ‘The idea of free money may sound appealing but borrowers must consider these deals with caution as they are often accompanied by a slightly higher rate or fee.
‘Mortgage applicants would be wise look at the product in its entirety to ensure that the best deal is obtained.’
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