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Low rates welcome but fees crucial when picking products ‒ analysis

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  • 07/08/2019
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Average fixed rates may have halved over the last decade, but brokers have emphasised that fees remain a central consideration when trying to find the best deal for clients.

New data from financial information site Moneyfacts has cast light on how the interest rates on fixed rate mortgages has plummeted in recent years. 

It noted that over the last ten years the average rate charged on two year deals had dropped from 5.21 per cent to 2.49 per cent, while on five-year products the rate had plunged from 6.10 per cent to just 2.84 per cent.

The difference from the rates charged 30 years ago was even more stark, with one of the lowest deals around then a three-year fixed rate from Westminster Bank with an eye-watering rate of 12.4 per cent. 

In comparison HSBC is now charging just 1.56 per cent for a three-year fix.

But while rates have become ever more tempting on fixed rates, brokers are clear that there is more to identifying the right fixed deal for their clients than simply pinpointing the cheapest rate on offer.

Fees are most important

Jane King, mortgage adviser at Ash Ridge Private Finance, said that fixed rates are undoubtedly “top of the pops right now”, but added that the fee is vital as sometimes a slightly higher rate with no product fee works out more competitive than a lower rate, particularly on smaller mortgages.

Sebastian Riemann, financial consultant at Libra Financial Planning, agreed that fees are what really dictate which fixed rate is best, with most lenders offering a range of low rate/high fee deals and vice versa, meaning “it largely depends on how much is outstanding on the mortgage as to what is best for the client”.

Andy Wilson, founder of Andy Wilson Financial Services, noted that deals with no arrangement fees, or cashback which can balance out the broker fees charges, are always popular as “clients do like a ‘no entry fee’ mortgage product”.

He added: “Sometimes these features can mean a trade off on the interest rate to be charged but when we compare the cheapest products over five years with fees against those without, there is little difference in most cases.”

What about early repayment fees

King called for more lenders to offer fixed rate deals without any early repayment charges, noting that Coventry Building Society is one of the few to adopt this approach.

Wilson added that product innovation tends to come in when interest rates move higher, noting that in the past this led to the development of things like stepped fixed rates and deferred interest mortgages.

He continued: “All of them sought to mitigate the initial costs of a mortgage. However when interest rates are low, as they are now, innovation is not required for clients to secure some very good deals.”

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