Money Insider: Are mortgage rates close to bottoming out? Get a fix... but check the cost

 

There's no let-up in the quest for new mortgage business, with lenders scrapping harder than ever for best buy recognition since the Funding for Lending Scheme (FLS) came into play.

Last week Tesco Bank announced details of a raft of new mortgage deals, including some competitive fixed rate pricing for those with at least 40 per cent equity. A couple of days later Chelsea Building Society responded with its own two-year fixed rate best buy home loan at 1.69 per cent and a £1,545 fee, although again this product is only available up to those with a 40 per cent deposit.

Looking at the new Tesco Bank range, the two-year fix comes in at 1.74 per cent, three years is 2.29 per cent and five years at 2.49 per cent – all with fees of £1,495 (£1,300 product fee and £195 booking fee).

Examining the five-year fixed Tesco deal in a little more detail, it's up against the 2.74 per cent Norwich & Peterborough Building Society mortgage with a much smaller £295 fee.

On the basis of a 25-year term and a mortgage of £150,000 then the N&P deal is slightly cheaper over the five-year fix, but for anything above £150,000 the low rate on the Tesco deal starts to make it a more viable proposition, despite the larger fee.

It's evident that many lenders are still eager to see their products in the best buy tables, hence the increasing number of low rate and high fee products we're seeing this year.

It's not to say that these products don't represent good value, particularly if you're looking to borrow a sizeable sum, but it highlights the need to compare mortgage products based on total cost rather than a single element of the overall pricing. The cost of home loans seems to be edging lower week by week but the rate cuts appear to be getting much smaller than those we saw when FLS was first introduced. It could be that mortgage rates are getting close to bottoming out.

Although the pace of rate cuts has slowed, the cost of borrowing is still well down on the products on offer just six months ago. Back in December the best five-year fixed rate deal was 3.19 per cent with a £499 fee – on a £250,000 mortgage it would have set you back £73,159 over the five years, while the latest 2.49 per cent (£1,495 fee) offer from Tesco Bank will set you back £68,695 – a saving of over £4,460, or almost £75 per month.

For those borrowers currently unsure of their next move and sitting on their lender's SVR of 4 per cent or more, now's the time for a good hard look at some of the longer-term fixed rates on offer. With the vast array of mortgage rate and fee combinations available it can be confusing for borrowers and choosing a home loan based on low rates in isolation could be an expensive mistake for some.

That's why it's important to employ the services of an independent mortgage professional to crunch the numbers and find the most suitable product for your particular circumstances.

If you're not sure where to find a mortgage specialist, type your postcode details on unbiased.co.uk for independent advisers in your area.

Don’t get caught by debit card charges on holiday

Using your debit card to pay for the weekly shop, to fill up the car or withdraw some cash at the hole in the wall has become second nature for millions of UK consumers.

That's no surprise bearing in mind it's a secure, convenient and totally free method of payment.

The problem is that some consumers still don't appreciate how much it costs them to use their debit card when abroad. For a start most banks and building societies charge a foreign transaction fee of between 2.75 per cent and 2.99 per cent – almost £3 for every £100 spent – but the charges don't stop there. If you withdraw cash you'll pay an additional fee of around 2 per cent, usually with a minimum charge of around £1.50 or £2.

If you use your debit card to make a purchase, some of the banks will hit you with a fee of between £1 and £1.50 per transaction.

With Lloyds TSB charging £1, Santander, RBS and NatWest £1.25 and Halifax £1.50 per purchase, your bill will soon mount up if you buy a number of small items.

A prepaid currency card is a much cheaper option to take on holiday. Check out the euro or US dollar cards from Caxton FX, Travelex, ICE and Fair FX and you'll end up with more spending money and far less to pay in charges.

Andrew Hagger is an independent personal finance analyst from www.moneycomms.co.uk

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