The latest research from Moneyfacts.co.uk shows that, as may be expected following two Bank of England base rate cuts and a reduction in the number of high loan-to-value (LTV) mortgage deals available, the average rates charged on fixed rate mortgage deals (all LTVs and initial fixed terms) have reduced significantly over the last four months, with the average for both deals that charge a fee and those that do not both decreasing by over 0.50%.
While this is great for borrowers, some may be concerned that in order to secure one of these low rate deals, there would be a significant initial outlay to cover at a time when disposable income may be hard to find. However, there is also further positive news for those looking to minimise any upfront costs, with the latest research from Moneyfacts.co.uk showing both the proportion of the market that includes deals that carry no fee and those that offer incentive packages have increased.
Eleanor Williams, Finance Expert at Moneyfacts.co.uk, said: “Fixed rates have dropped to attractive lows over recent weeks. The latest Moneyfacts.co.uk data shows that the average rate charged on fixed rate products with no fee has reduced by 0.52% since March this year, and the equivalent average for deals with a fee has dropped by an even larger 0.59%, sitting at 2.28% and 2.30% respectively. The average standard variable rate (SVR) that customers may revert to at the end of a deal now sits at 4.48%, having decreased by 0.42% since the start of March.
“The potential savings for those looking at a new deal are clear, as those remaining on their SVR could be paying out as much as £182.58* more per month than those who have secured a new deal. Another consideration for those debating whether or not to look for a new mortgage deal is that the low initial rates we are currently seeing may potentially increase once lenders are able to return traditionally higher rated, higher LTV products to their ranges.
“However, caution is understandable at a time when many have been hit by a fall in their income levels due to furlough, redundancy or unemployment. Borrowers are likely to want to keep a close eye on their monthly outgoings and reduce costs where possible at the moment. Therefore, there may be mortgage borrowers who want to take advantage of this low rate environment to remortgage, but are hesitating due to concerns around taking on any additional expenses, such as paying a product fee or having to find the funds to meet other set-up costs such as legal fees or valuation expenses.
“It should then come as good news to consumers that despite the fact the average fee charged on a fixed rate product remains at a similar level to the start of March of this year, we are seeing stability in the proportion of fixed rate mortgage deals that carry no fee and growth in the proportion that offer an incentive package. Over this time period, there has been a 5% increase in the proportion of deals that offer free or refunded legal fees, a 7% rise in the percentage of the market where a free of refunded valuation is on offer, and a 2% increase in the proportion of the market where cashback is available. These changes suggest that despite operational difficulties and economic uncertainty, lenders are not just competing on rate, but are also tailoring their overall packages to entice borrowers too.
“While the increase in proportion of products that carry an incentive package is inherently positive and can alleviate some of the upfront cost associated with a new deal, borrowers do need to be aware that these incentives are likely to only cover the basics. Typically, free valuations tend to be basic and it is possible to instruct a surveyor to ensure a more comprehensive survey is completed. Free legal fees will generally cover just the standard conveyancing but, for anything more complicated, there would usually be further charges or the option to appoint your own solicitor.”