Mortgage UK: Why the ‘cheapest rates’ could end up costing you £14,985

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Martin Lewis provides advice on mortgages in later life

Mortgage UK: Homeowners are being warned that the cheapest rates for mor (Image: GETTY)

Following the sharp rise in inflation in June, Habito is advising the public that now could potentially be the best time to lock in a longer term fixed rate mortgage.

Habito launched the UK’s longest ever fixed-rate mortgage option, allowing homeowners more flexibility and to have more choice over their mortgage.

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Specifically, the online mortgage company wants to advise people with larger mortgages because of current low interest rates.

Recently, HSBC and TSB announced loans with interest rates fixed at 0.94 percent for two years, which bests the previous best deal loan of 0.95 percent.

HSBC’s mortgage is available for a £999 fee and is available to both homeowners and re-mortgagors, with a five-year fixed rate of 1.29 percent for those borrowing up to 75 percent loan-to-value.

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In comparison, TSB’s mortgage is only available to re-mortgagors, who can fix for two years at 1.09 percent up to 75 percent loan-to-value for a set £994 fee.

On HSBC’s new loan, Michelle Andrews, HSBC UK’s Heads of Buying a Home, said: “We have made significant rate cuts across our fixed term mortgages, continuing our support for all buyer types whether they are first time buyers as they look to take their first step on the property ladder alongside those also looking at moving up the ladder with their next home, or those whose fixed rate deals are coming to an end and looking for a new deal.”

She added: “This change includes our lowest ever mortgage rate of 0.94 percent, plus other rates that are hitting new lows, making it much cheaper for home buyers as well as those looking to remortgage, regardless of the size of their deposit or the equity they hold.”

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Mortgage UK: House and keys

Mortgage UK:Recently, HSBC and TSB announced loans with interest rates fixed at 0.94 percent for two years, which bests the previous best deal loan of 0.95 percent. (Image: GETTY)

Both mortgages are only available to potential borrowers with at least a 40 percent deposit and anyone with less equity will have to pay higher interest rates.

The previous best deal on the market was a two-year fixed-rate at 0.95 percent from Platform, which is part of Co-operative Bank.

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However, it was only available through mortgage brokers for a price of £1,449.

Commenting on the current price of rates, Will Rhind, Head of Mortgage Advice at Habito, explains: “Rates have been at historical lows for many years now. But, this might not be the case for much longer.

Mortgage UK: Couple using laptop

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Mortgage UK: Following the sharp rise in inflation in June, Habito is advising the public that now could potentially be the best time to lock in a longer term fixed rate mortgage. (Image: GETTY)

“You can lock in your interest rate for two, five, 10 or even the whole term of the mortgage, by taking a fixed-rate mortgage.”

He added: “While rates are cheapest for shorter term fixes, many mortgages are taken for 25-30 years – so what you’ll pay in total interest depends on what interest rates are in the future.

“That’s because when your two-year fixed deal expires, you’ll have to remortgage to a new deal with a new interest rate (or, if you don’t remortgage, you’ll be moved onto the lender’s more expensive standard variable rate).

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Rhind emphasised the danger of homeowners deciding to choose a fixed rate mortgage at two years at a time.

Notably, he warned that homeowners could potentially end up remortgaging 14 times over the life of the average mortgage.

He continued: “Most deals come with a £999 fee payable each time, meaning that it would cost around £14,985 in total in arrangement fees. If you opt for a longer-term fix of seven to 10 years, you have the protection of knowing you’re safe from any interest rate rises for a while.

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“But the big drawback to these deals has always been that they typically come with punitive exit fees.

“So, if you have to leave before the deal is up there usually is a hefty charge, which can be thousands of pounds.”

According to Rhind, the best way for homeowners to begin budgeting is to start by fixing issues relating to their mortgage.

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“For homeowners who want the certainty of knowing what they need to budget for their home every month for years to come, fixing the mortgage is a great way to achieve this,” he explained. 

“If you’re one of the hundreds of thousands of homeowners in the UK that finds remortgaging every two-years stressful, costly or time-consuming, then choosing a longer fix, or fixing for the whole term could be a hassle-free option.”

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