Money Insider: Choosing a mortgage can be a headache without advice
Saturday 18 September 2010
brokers still play a vital role when it comes to mortgage selection. The mortgage market and the amount of business being written may only be a fraction of what it was before the banking crisis, but that doesn't mean that the job of finding the right mortgage has got any easier. There is still a vast array of home loans to choose from and even if you've already worked out whether it's a variable rate or fixed rate product that you're going to plump for, you still need to fathom out which is the cheapest mortgage for you. Unlike savings accounts, personal loans or credit cards, the answer isn't as simple as referring to a best-buy table, although some lenders still launch attention-grabbing interest rates, hoping that it will be sufficient to win custom from those who don't take the time to shop around or use the services of an independent financial adviser or mortgage broker.
Unfortunately, a number of lenders continue to bypass the broker community and sell their products directly via branch networks or increasingly online, a situation which has hit the intermediary market hard.
The marketing departments of banks and building societies continue to develop products with profit margins based on various rate and fee combinations, and whilst it may work for them, for the man on the street it's just a big headache.
One of the biggest problems for consumers is working out which is the most appropriate mortgage based on the total cost, ie not just the interest rate but also the associated fees, which can vary enormously between lenders and individual products.
If you take a look at three of the two-year fixed deals currently available, you'll see what I'm getting at, so which do you think is the best of these? – Coventry Building Society 2.49 per cent with a £199 booking fee and 1.5 per cent arrangement fee; Lloyds TSB 2.94 per cent and £1,895 fee; or Yorkshire Building Society 2.89 per cent with £995 fee.
It's not a two-minute job to pick the cheapest, and that's the problem: it's not a case of one mortgage fits all, the best deal will also depend on the amount you're looking to borrow, too. Having crunched the numbers, if you were only looking to borrow £50,000 then the Coventry Building Society works out as the cheapest on a total cost basis. However, if you're looking to borrow £200,000, then due to the 1.5 per cent arrangement fee, which would set you back a hefty £3,000, the same deal suddenly becomes the most expensive of the three. If you're looking to borrow £120,000 or £200,000, then it's the Yorkshire Building Society deal that works out cheapest over the two-year fixed term, but without access to a mortgage calculator it would be almost impossible to choose.
You can use some comparison websites to search for mortgages based on total cost, but many people would prefer to sit down face-to-face with an independent professional adviser to carry out the calculations on their behalf. When you consider that your mortgage is likely to be the biggest financial transaction you'll undertake in your lifetime, it makes sense to seek advice to ensure you don't make what could be a potentially expensive mistake.
We need to see more lenders supporting the intermediary market as there's the danger that without it we will see a depleted broker market suffer further. Unfortunately for the consumer, it's those very brokers that would be the first to point out the real cost of some of these attractive looking offers.
It's been another week where the bad news for savers outweighs the good, with a number of best buy fixed rate bonds being withdrawn. This week the casualties included the two-year fixed rate bonds from Sainsbury's Finance and Coventry Building Society at 3.55 per cent and 3.7 per cent respectively. The longer-term fixed market saw Yorkshire Building Society's Barnsley branded 4-year deal at 4.25 per cent facing the chop too.
On a more positive note, for savers aged 50 and over, Saga has just launched an online 5-year fixed rate bond paying 4.5 per cent gross. Whilst it's possible to get as much as 4.75 per cent with ICICI Bank UK, the Saga bond also offers savers the option to receive their interest on a monthly basis. You can also access your funds early if required, however the loss of interest penalties are quite severe, so you'd have to be pretty desperate to get your hands on your cash to want to do this.
Just because base rate remains at a record low level, don't stop shopping around as the rates on savings accounts still vary dramatically between providers.
Andrew Hagger is a money analyst at Moneynet.co.uk
Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk
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