According to recently released data, 40% of mortgages are not fee-free. Whilst this is welcome news for most buyers, it presents a new set of obstacles for consumers to negotiate. The overall cost of a fee-free mortgage for first-time buyers could see you overpaying by hundreds of pounds a year.
Why the rise in fee-free mortgages for first-time buyers?
New figures from @Moneyfacts_couk reveal over 2,000 fee-free mortgages are now available, a significant rise on the 274 available in January. Additionally, cash-back incentives with mortgages are increasing.
The rise in this type of mortgage product is an attempt by lenders to attract more customers. Banks are wary of cutting interest rates to new borrowers as the base rate, the interest rate the Bank of England uses to lend money, is expected to rise. Should this happen, there will be an increase in ‘swap rates’, a factor banks use to determine their fixed mortgage rates.
Interest rates have generally been rising, and so lenders are having to find other ways of incentivising their mortgage products to customers. Hence the fee-free mortgage has become the latest mortgage product used by banks and lenders to attract the first time buyer.
Factoring in the overall cost of the mortgage
It’s obviously an attractive prospect because a fee-free mortgage could save you money. Moneyfacts’ data shows that the average arrangement fee on a mortgage increased from £979 to £990 in 2018.
There is a downside, however. A fee-free mortgage for the first time buyer means a higher interest rate. What this means is that over the life of the mortgage, you could end up paying more because the lender needs to recoup their costs.
The benefit of a fee-free mortgage
For the first-time buyer (and most buyers) ‘spare’ cash to pay upfront fees is usually lacking. Clearly, with every penny you have going into your deposit, the less you can spend upfront arranging the mortgage, the better.
With a fee-free product, you don’t have to find a large lump sum. Lenders do allow this fee to be added to the mortgage but that means you’ll be paying interest on it over the course of the mortgage.
There are low-fee mortgage options offered by some lenders. This is what it says – you pay less upfront, making the initial outlay for fees more manageable with the outstanding balance added to the mortgage (but you’ll pay interest on this too, don’t forget).
Is a fee-free mortgage right for you?
Everyone’s financial position is different, and whatever your circumstances, tailored mortgage advice is essential. A low or fee-free mortgage is a great solution for many first time buyers but it’s important to do the sums. Our team can advise you on all the latest mortgage products on the market. Contact the team today to arrange a consultation.
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Written by: Cambridge Web Marketing