Borrowers enticed into the bargain basement for houses

Lenders are dangling special deals on interest rates and fees at the start of 2007, but will you really save money?
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The Independent Online

When it comes to new year bargain-hunting, there can be little to beat the promise of savings on a house purchase. For most of us, this will be the most expensive "item" we ever buy, so every penny counts.

Keen to tap into this sentiment, a number of lenders have special home-loan deals on offer in their "new year sales" to borrowers who are either buying or remortgaging early in 2007.

Lloyds TSB, HSBC and Leeds building society are among those trying to lure bargain- hunters with offers on mortgage fees and interest rates.

Lloyds TSB has launched the Low Start Mortgage, a five-year deal that starts out with a rate of 1.99 per cent until February 2008 - before rising to 5.99 per cent for the next four years.

HSBC has discounts on a range of products including its five-year fixed-rate mortgage at 5.17 per cent, where it is waiving the £499 booking fee.

The bank has also "gone green" in its annual sale: for every product sold, it will contribute £2 to a number of environmental charities such as the Earthwatch Institute.

Elsewhere, Leeds building society is offering borrowers the chance to save up to £1,000 on its three-year fixed-rate deal at 5.29 per cent - by reducing the arrangement fee from £750 to £335, with a free standard valuation service. There is also free legal work for remortgages, or £250 cashback if you are a first-time buyer.

But while you may be tempted by these eye-catching offers with a "sales" tag dangling over them, you need to tread carefully because there may well be better deals on offer.

At the heart of the matter is the underlying interest rate and the associated small print, says Andrew Montlake from broker Cobalt Capital. "Borrowers should not be too swayed by slightly cheaper fees until they have compared the actual products themselves - rates, fees and everything else - with the rest of the market.

"The majority of good lenders don't need to rely on 'sales gimmicks'," he adds. "They let their products do the talking instead."

Borrowers should view each deal on its own merits, brokers urge, and then do the sums with the help of the lender or their broker, or on their own.

The Lloyds TSB offer, for example, will appeal to first-time buyers for whom money is particularly tight in the early years of a mortgage, says Melanie Bien at broker Savills Private Finance. "The 1.99 per cent rate is extremely low," she explains. "But this only lasts for a year before rising to a high rate of 5.99 per cent. It is important to work out the overall cost of this deal as this rate is equivalent to 5.19 per cent over five years, which isn't that attractive compared to what else is available."

She points out that the Lloyds TSB deal comes with a £999 arrangement fee and that the most you can borrow is 90 per cent - so many first-time buyers won't be able to afford this mortgage anyway.

While the Leeds offer of a £1,000 saving may also seem appealing, Ms Bien warns that it applies only to a single mortgage deal, the three-year 5.29 per cent fix, and notes that the Portman building society has a three-year fixed-rate offer at 4.99 per cent with only a slightly higher fee of £599.

Nick Gardner of broker Chase de Vere is more positive about HSBC's 5.17 per cent product, dubbing this a "pretty good deal" - although he points out that there are cheaper five-year fixes available. The Woolwich, for example, has a brand-new 2007 deal at 4.98 per cent - with a £1,495 fee - while the Portman has an offer at 4.99 per cent with a £699 arrangement fee.

"But borrowers need to do their sums," adds Mr Gardner. "For most people, the HSBC deal will still work out cheaper than these other, lower rates because of the £499 saving made on the arrangement fee."

Given the widespread speculation that the Bank of England will raise the cost of borrowing in the months to come, now could be a good time to fix if you are looking to buy or remortgage.

"[You] could save hundreds of pounds," says James Cotton at broker London & Country, "but it's important not to go for a new deal just because it's in the sales. Make sure you keep your wits about you and always shop around for the best deal."

First-time buyers Danielle Amici and Simone Giorgini, both 28, are about to buy their first home together, and are taking advantage of the January sales to keep their costs as low as possible.

They are buying a two-bed flat in east London and are applying for the five-year fixed-rate mortgage at 5.17 per cent from HSBC. "We saw the deal being advertised and were keen to benefit from the £499 saving on the booking fee," says Danielle. "We didn't want to miss out on these savings as we have a tight budget."

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