Is the New Mortgage Price War ‘Phoney’?

by Mark Johnston

Is the New Mortgage Price War ‘Phoney’?

It appears that thanks to the bank of England’s funding for lending scheme mortgages are now at their most affordable for almost 15 years.

Competition has definitely returned to the mortgage market and rates are falling to unbelievable lows.

Banks and building societies have of late slashed the interest rates charged on many leading mortgage deals. It seems that now borrowers can now fix their mortgage rates at less than 2 per cent for up to two years.

Figures published by the bank of England show that average mortgage rates have fallen across the board, but those with smaller deposits will still pay a far higher rate.

Those with a 10 per cent or less deposit can expect to pay just under 4 per cent for a two year fixed rate deal.

Clare Francis, mortgage spokesperson at, a comparison website, said “it is good to see rates falling on fixed rate mortgages but borrowers need to work out the true cost of the mortgage, once the fees are taken in to account”.

While rates have tumbled, the fees that lenders are now charging to take out these deals have spiralled.

For example, the Yorkshire building society and Chelsea building society have recently  cut their mortgage rates, but increased their fees.

Chelsea building society offers the ‘cheapest ever’ two year fixed rate mortgage, with a rate of just 1.74 per cent. However this deal comes with a whopping £1,825 arrangement fee.

At the same time Yorkshire building society, which is part of the same group, has cut the cost of its own two year fixed rate deal. It charges a slightly higher rate of 1.79 per cent, but those remortgaging or moving home pay just £1,345 to secure the rate.

Home owners should therefore look at more than just the headline rate as the high fees attached to many of these so called best buys mean that they are only likely to be the most cost effective option for those with larger than average mortgages.

With this in mind experts have warned that some of the new deals are not what they seem and they urge those looking to buy a home to their homework.

Adrian Anderson, a director of mortgage brokers Anderson Harris, warns customers to look beyond these introductory offers.

David Hollingworth of London and Country, added competition to offer the cheapest headline rate is likely to mean fees remain high. Borrowers will need to keep their wits about them in order to hunt down the cheapest deal”.

Some of these new deals have such high fees that the headline rate is almost meaningless.

Consumer experts have therefore dubbed this a “phoney price war”, with many home buyers unable to access the cheapest rates.

Jonathan Harris from mortgage broker Anderson Harris, has also warned of difficult to please lenders and said “lenders are not relaxing their criteria and this is extremely tight on higher loan to value (LTV) deals in particular.

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