Borrowers opting for the ‘cheapest’ mortgage deal with one of the UK’s ‘Big Six’ lenders could be paying almost £900 over the odds, according to Trussle.
The online mortgage broker looked at the lowest rate deals of the Big Six lenders – often considered the most attractive by borrowers – and compared these to their best deals by true cost, accounting for all fees and charges.
Of these lenders (Lloyds Bank, Nationwide Building Society, RBS, Santander, Barclays and HSBC), the study found that in almost every instance, the lowest rate deal is not the most favourable option for borrowers.
The lowest two-year fixed rate at Nationwide Building Society stands (1.54%) would cost a borrower £14,213 over the two-year introductory period when all fees and incentives are considered. However, the same owner could save up to £874 by choosing a deal from the same lender with a higher interest rate (1.94%) but lower fees.
Meanwhile, Santander’s lowest two-year fixed rate (1.44%) would cost £14,485 over the first two years, but a borrower could save up to £811 by choosing the bank’s higher rate deal of 1.89%, which comes with lower charges.
These calculations are based on someone getting a mortgage of £136,144, which equates to a 60% loan-to-value (LTV) ratio on the UK’s average house price of £226,906.
Ishaan Malhi, chief executive officer and founder of Trussle, said the focus should always on true cost – the interest rate plus associated fees – when comparing mortgage deals.
“Too often, borrowers are lured into making a decision based on headline rate alone and end up paying hundreds of pounds more in unexpected charges than they would on other available deals,” he said.
The Big Six serve two thirds (68%) of the market, with the difference in true cost between each bank’s lowest two-year fixed rate deal and their best value deal averaging £430. By choosing a two-year fixed cost based on headline rate, rather than true cost, their one million new mortgage customers each year could collectively lose out on over £444 million, up from £405 million first reported by Trussle in March.
The picture is the same in the five-year fixed market. A Nationwide customer opting for the bank’s lowest rate deal of 2.09% would pay £693 more over the initial period than if they chose Nationwide’s 2.29% deal.
Likewise, an HSBC customer could save £234 by choosing the bank’s 2.09% product rather than its lowest 1.89% deal.
Additionally, Trussle found that 30% of Brits understand the information presented by lenders when considering their mortgage deal, while 9% feel that deals hide important information. Some 44% consider upfront costs when choosing their mortgage.
Malhi said the Big Six are ‘contributing to the already confusing process of securing a mortgage’.
“Something needs to change to give borrowers more transparency,” he added. “It’s time that lenders, brokers and comparison sites start displaying true cost alongside deals.”
“By making this information clearly available to homeowners, the market would become far more explicit and would work better for everyone as a result.”