Beware 'Best-buy' tables!

Low interest rates often come with high fees!

If you're looking for a mortgage deal you have probably been tempted to look at the ‘best-buy' tables in newspapers or on the web. However, mortgage experts have warned that choosing the lowest rate may not be the best option for millions of mortgage borrowers.

While mortgage rates have hit record lows over recent weeks, fees on the best deals have increased by almost half since 2009.

As the government's Funding for Lending scheme has given banks and building societies access to cheap funds, many mortgage rates have fallen sharply over recent weeks. Indeed, it is now possible to secure the lowest two or five year fixed-rate deal on record.

However, at the same time, arrangement fees for mortgages have risen significantly. A spokesperson for data analysts Moneyfacts said: "Since the credit crunch, the average fee charged on a mortgage has quietly risen from an average £937 in April 2009, (the month following Bank of England base rate falling to its historic low) to the current average of £1,402 (a rise of 49.6%)."

Keith Osborne, editor of whathouse.co.uk, says: "Some of the lowest mortgage deals have fees in excess of £1,000 or £1,500 and so you have to factor this cost in when you choose a mortgage. For smaller loans it is often beneficial to choose a higher interest rate with a lower fee while for large loans you often benefit from a lower rate and a higher arrangement fee. In addition, you should take into account the length of the deal. For example, a £795 arrangement fee for a two-year fixed deal is quite high, but on a five-year deal the overall impact of this fee is reduced."

For example, on a £150,000 interest-only mortgage on a two year fixed rate at 2.24% with a £295 arrangement fee you will pay a total of £7,015 over the two years. However, on the same mortgage on a deal at 1.89% with a £1,695 arrangement fee, you will pay £7,365 over the two years. You would save £350 by choosing the more expensive deal with the lower fee.

Moneywise concludes that: "With show-stopping rates now topping the best-buy tables, the message to consumers is proceed with care and always watch out for fees."