The Co-operative Bank removed the £999 fee on its flagship 2.79% five-year fixed rate deal last week in a bid to undercut its rivals. HSBC have similarly attractive low fixed rates but they come with whopping £1,499 cost on the side, putting off many borrowers.
What the Co-op is demonstrating is that in a world of such low rates it is not just the interest payable that makes a deal the best buy.
Newspaper best buy tables are designed to catch the eye of potential mortgage borrowers with stunning rates. Five-year fixes under 3% are exactly that type of headline-grabbing rate but they usually come with hidden costs.
The fact that Co-op has decided to scrap its fee shows that borrowers are at last, beginning to look behind the best buy tables and use them properly.
How to use best buy tables
The golden rule for using best buy tables is to look at the deposit needed to get the deal as the best rates usually accompany the highest deposits.
The second thing to look out for is fees as they can often drift into the thousands of pounds of upfront costs. Such a large slab cost can often come on top of the ever-frustrating price of stamp duty and together can cripple a house move.
There are arrangement fees, valuation fees and legal fees so watch out that the best rate doesn’t sting you with these costs. There have been signs in recent years that lenders have tried to recover some money from high fees in an era of low interest rates.
Thirdly borrowers must constantly be aware of the criteria needed to get a mortgage as it can be really tough for the best rates. Lenders offer their best rates to the borrowers who will be both secure and profitable so unless you fit this box you may be rejected.
There are some very simple things potential borrowers can do to increase your chances of success such as stay in the same address for a couple of years and register on the electoral roll. Lenders want to see stability so ensure they receive regular monthly payments so it will make it easier to get a loan.
Fourthly the best buy tables are an incredibly blunt tool often designed for lenders’ marketing purposes. There are many deals which could fit your situation perfectly that are never going to appear on best buy tables. It may be that you are buying with friends, working in the army overseas or looking to build your own home.
There are mortgages available in all these areas but you will never find them on best buy tables with their super-low rates designed for a narrow band of individuals.
Should I use them?
Best buy tables have their purpose and can show you which lenders are really trying to push the boat out to get business. One of the best people to scour the market and find the best deal for you is a mortgage broker who are qualified experts in the UK market. They will usually have contacts at lenders and know far more deals than the five at the top of the weekly best buy table.
With the Co-op scrapping their fees on a best buy deal it shows that borrowers are becoming more aware of lender marketing and pricing tactics. No longer can lenders simply whack a huge fee onto a cheap deal and get away.
Maybe others will follow suit but if you don’t want to be caught out with an unexpected fee or rejected by a best buy deal then think of choosing a national broker, who can guide you through the maze.