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Mortgage incentives and fee-free deals endure

Mortgage incentives and fee-free deals endure

The proportion of fixed mortgage deals that carry no fee, or offer an incentive package, has continued to hold a significant share of the market despite the pandemic, according to data from Moneyfacts.

Research by the price comparison site found the proportion of fixed deals providing free or refunded legal fees had increased by 5 percentage points in the four months since the start of March.

The percentage of fixed products that offer a free or refunded valuation has also increased, by 7 points. The share of fixed deals offering cashback increased by 2 percentage points since March.

Meanwhile, the proportion of fixed-rate products without a product fee held steady at 40 per cent of the market, while average product fees fell slightly from the £1040 charged in March to £1,029 in June.

Fixed mortgage deal analysis

 

Mar-20

Apr-20

May-20

Jun-20

19-Jun-20

Average product fee (excluding deals with no fee)

£1,040

£1,028

£1,024

£1,018

£1,029

Deals with no product fee

1,780 (40%)

1,100 (40%)

873 (40%)

959 (40%)

894 (40%)

Deals with free/refunded legal fees

2,157 (49%)

1,456 (53%)

1,218 (55%)

1,252 (52%)

1,220 (54%)

Deals with a free/refunded valuation

3,145 (71%)

1,873 (68%)

1,630 (74%)

1,863 (78%)

1,745 (78%)

Deals with cashback

1,377 (31%)

884 (32%)

737 (33%)

781 (33%)

744 (33%)

Average rate (deals with fee)

2.89%

2.93%

2.71%

2.43%

2.30%

Average rate (deals with no fee)

2.80%

2.80%

2.38%

2.32%

2.28%

Average standard variable rate (SVR)

4.90%

4.75%

4.55%

4.49%

4.48%

The % shown is the proportion of deals out of the fixed mortgage market. Source: Moneyfacts.co.uk. Data shown is at 1st working day of the month unless otherwise stated.

According to Eleanor Williams, finance expert at Moneyfacts, the rising share of mortgage incentives and fee-free deals suggested lenders were competing beyond interest rates.

However, Ms Williams warned that borrowers should beware the limited advantages of these incentives.

She said: “Typically, free valuations tend to be basic and it is possible to instruct a surveyor to ensure a more comprehensive survey is completed.

“Free legal fees will generally cover just the standard conveyancing but, for anything more complicated, there would usually be further charges or the option to appoint your own solicitor.”

The data from Moneyfacts also found the average rate on a fixed-rate deal without a fee had reduced by 0.52 percentage points since March to 2.28 per cent.

Meanwhile, the equivalent average rate for deals with a fee had fallen by 0.59 percentage points over the same period, to 2.3 per cent.

Alex Kemp, partner at Ideal Mortgage Advisers, agreed there were pros and cons in such deals.

Mr Kemp said: “You will have to pay a premium for the rates in most instances, however for smaller mortgage sizes under [£250,000] the products offering free valuations, legal work and cash back will have a big difference for people’s budgets." 

Mr Kemp also said most lenders would allow any arrangement fees to be added to the mortgage, despite the possibility that this would take the loan-to-value above 90 per cent.

David Hollingworth, associate director, communications at L&C Mortgages, said: “As lenders expand their range of products it’s encouraging to see that they are not only focused on rate but also remain committed to providing a choice of deals. Borrowers will want to take advantage of the low rates on offer but being faced with a big fee won’t work for everyone.

“Most lenders will offer a number of product variations with smaller or no fee plus incentive packages to help borrowers take a new deal without facing substantial costs. That can only help advisers find the right fit for the individual requirements of their customers.”

chloe.cheung@ft.com