MortgagesJun 29 2015

Fee-free mortgage deal could save borrowers £1,500

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Fee-free mortgage deal could save borrowers £1,500

The number of fee-free mortgages has quadrupled in the last five years, according to the latest Moneyfacts research.

Charlotte Nelson, finance expert at the website, said the amount of those mortgages that come with no arrangement, completion or administration charge has increased from 220 deals in 2010 to 902 today.

With a quarter of the market now offering fee-free deals, she said it is clear that lenders are trying to compete in other ways, besides the traditional headline rate.

By offering multiple product combinations, providers are almost allowing their borrowers to customise their mortgage to suit them.

She said: “Unfortunately, too many borrowers still focus their initial attention on getting the lowest possible rate, without taking into consideration the true cost of the deal, where fees can have a significant impact.”

Ms Nelson added that in many cases these low-rate deals are often accompanied by a hefty fee, which can work out as being more expensive than opting for a no-fee option - many may assume that a fee-free deal is not cost-effective over the long term; “however, this is not the case”.

The difference in rates between the average two-year fixed rate mortgage with a fee, against the average fee-free deal is just 0.2 per cent, according to Moneyfacts.

“By opting for the lowest fixed rate fee-free deal, borrowers could save up to £1,500, regardless of the length of the mortgage term, when compared with the true cost of a low-rate deal with a fee,” Ms Nelson said.

Ray Boulger, senior technical manager at broker John Charcol, told FTAdviser this was an area where advisers could really add value for clients by helping to calculate if a borrower would be better or worse off with a fee-free deal.

In terms of the numbers of deals available today, he pointed out that back in 2010 lenders had very little cash to offer and were not competing to get borrowers.

emma.hughes@ft.com