Mortgage rates drastically decreasing could mean homeowners face high fees instead, experts say, who want homeowners to take extra care with the fees involved in their purchase, primarily when the fixed-rate period comes to an end.
The Co-op has just launched the lowest ever two-year fixed mortgage, at a rate of 1.09 per cent, following up on HSBC recently launching the lowest ever five-year fixed rate mortgage, at a rate of 1.99 per cent.
However, the Co-op’s offer is only available for buyers who are able to afford a 40 per cent deposit. For either of the above offers, buyers must also pay a fee of £1,500, well above the average mortgage fee which is just £920.
“These rates come at a cost. If you think you are going to have to move your mortgage again in two years time, you’ve got to think whether you are going to have to pay another fee,” Rachel Springall, of Moneyfacts, told the BBC.
The ‘reversion rate’, which is where the mortgage rate generally increases at the end of the fixed-rate period, is therefore being highlighted as a significant risk to buyers. If borrowers do not look elsewhere once their term finishes, then they may end up on bad rates.
Some borrowers may therefore be better off with slightly higher rates, which have lower fees, especially if they intend to remortgage quite frequently.
David Hollingworth, from London and Country, said: “The deals with lower rates will see a bit more capital repaid in two years, but you can see here that your outlay is affected by the bigger fee.”
