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Finding a leading mortgage rate without having to fork out additional upfront fees is now rare, Which? research has found.
While interest rates on mortgages have been falling in recent weeks, the number of fee-free offers on market-leading deals has also declined, suggesting lenders may be offsetting the costs.
Here, Which? unpacks how fees on the best deals have increased, who may be suffering from this trend, and how you can find the most affordable mortgage product.
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We compared the top 10 leading products (by rate) available on 25 September, with the top 10 deals available on 24 July across 60%, 75%, 90% and 95% loan-to-value ranges.
Of the 40 leading products, 15 were fee-free in July. In contrast, in September there were no fee-free products in the top 40.
| LTV | Fee-free deals in the top 10 (24 July) | Average fee cost of top 10 (24 July) | Fee-free deals in the top 10 (25 September) | Average fee cost of top 10 (25 September) |
|---|---|---|---|---|
| 60% | 3 | £718 | 0 | £1,157 |
| 75% | 3 | £787 | 0 | £1,126 |
| 90% | 5 | £478 | 0 | £1,077 |
| 95% | 4 | £649 | 0 | £1,047 |
Source: Moneyfacts. Data was gathered on 24 July and 25 September.
In July, you wouldn't have to look far down the list of the best deals to find a fee-free one, they were either the best rate or second-best rate, but now fee-free deals are harder to find.
The first fee-free deal on a 60% mortgage in September was the 46th cheapest rate, for 75% and 90% mortgages it was the 26th lowest, and for a 95% deal it was the 14th.
We compared the market-leading deal in September with the best fee-free deal from July, to find out the overall cost.
Note: The below figures are correct at the time of writing, but there's no guarantee the specific deals we've listed will remain on the market. The information in this article is for information purposes only and does not constitute advice. Please refer to the particular terms and conditions of a mortgage provider before committing to any financial products.
| LTV | Best-fee-free deal (24 July) | Total paid back after 24 months | Cheapest rate (25 September) | Total paid back after 24 months | Best deal over 24 months? |
|---|---|---|---|---|---|
| 60% | 5.96% | £30,809 | 5.44% ( £999 fee) | £30,303 | September's deal (£506 less) |
| 75% | 5.96% | £30,809 | 5.48% (£1,295 fee) | £30,714 | September's deal (£95 less) |
| 90% | 6.13% | £31,309 | 5.85% (£1,295 fee) | £31,783 | July's deal (£474 less) |
| 95% | 6.37% | £32,021 | 6.19% (£1,495 fee) | £32,981 | July's deal (£960 less) |
Table notes: Calculations based on £200,000 mortgage with 25 years remaining. The total paid back after 24 months is calculated by paying fees upfront, rather than adding cost to the mortgage.
Our analysis suggests lenders have made more significant price cuts to mortgages traditionally taken out by home movers and remortgagers (75% LTV or lower) compared with those traditionally for first-time buyers (90% and 95% LTV).
Borrowers who took out the best fee-free deal at a 60% or 75% LTV in July would have been better off with September's market-leading rates that are lower but come with a fee. But the reverse is true for first-time buyers with smaller deposits, as borrowers at 90% or 95% LTV would have paid less in July, even though interest rates were significantly higher.
So while interest rates on mortgage deals may have fallen, it's vital to check how the fee impacts the overall cost of your deal.
If you're juggling the various costs of buying a home, you might feel that paying a fee in exchange for a lower rate is a good trade-off, but make sure you do the sums before taking the plunge.
When we compared the cheapest rate with the best fee-free deals in September we found that across each LTV the fee-free deal was cheaper overall.
| LTV | Cheapest rate (25 September) | Total paid back after 24 months | Best fee-free deal (25 September) | Total paid back after 24 months | Best deal over 24 months? |
|---|---|---|---|---|---|
| 60% | 5.44% ( £999 fee) | £30,303 | 5.76% | £30,226 | Fee-free (£77 less) |
| 75% | 5.48% (£1,295 fee) | £30,714 | 5.76% | £30,226 | Fee-free (£488 less) |
| 90% | 5.85% (£1,295 fee) | £31,783 | 6.19% | £31,486 | Fee-free (£297 less) |
| 95% | 6.19% (£1,495 fee) | £32,981 | 6.59% | £32,680 | Fee-free (£301 less) |
Table notes: Calculations based on £200,000 mortgage with 25 years remaining. The total paid back after 24 months is calculated by paying fees upfront, rather than adding cost to the mortgage.
Your lender might allow you to add the fee to your mortgage, but beware this will increase the amount you're borrowing and therefore what you pay interest on. It also might not always be possible if you are at the limit of what you can borrow.
Our repayment calculator shows you how much a deal will cost each month based on how much you're borrowing, the interest rate, fees, and the term of the mortgage.
When searching for a mortgage deal, always look at the extra costs involved, these come under different guises, such as a product, arrangement or completion fee.
The highest current charge is £2,995 set by Skipton Building Society for a select number of its products.
Banks commonly set fees between £999 and £1,999, but some use percentages instead - for example 0.5% of the overall loan amount. If you're borrowing a larger sum, this kind of fee can be significantly more expensive.
If you're unsure about which type of deal to go for, a mortgage broker will be able to research deals based on their true cost, taking into account rates, fees and incentives such as cashback.
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