As inflation has slowed and expectations of the Bank of England’s base rate have risen, mortgage lenders have slashed APRs in a bid to grab the headlines and attention of would-be borrowers.

This week, borrowers can lock in rates as low as 4.63% for a 75% LTV two-year fixed rate deal. However, often these eye-catching offers only mention product fees (of c. £1,000) in the small print.

Fees become more of an issue with a 2-year fix compared with a 5-year fix, when the cost is spread across 60 months. They will also add up over time with customers locking in back to back short term deals, and when they choose to pay the fees over the lifetime of the mortgage (as they will accrue interest) instead of paying them up front..

While a low-rate high fee deal can work for larger mortgages (the table below shows Londoners could save £81 over two years), they’re often more expensive for homeowners borrowing smaller amounts (for example, an extra £639 for those in the North East).

The above table compares the cheapest two-year (Halifax 4.63% plus £999 product fee), and the cheapest two year fee-free fixed rate (Lloyds 4.84%) deals. And it shows that for all regions bar London, the cheapest two-year deal is more expensive than the cheapest fee-free mortgage offer.

 Alastair Douglas, CEO of TotallyMoney comments:

“Over the past three years, more than a third of people taking out a mortgage or changing to a new rate decided not to use a broker or advisor, and instead found it themselves. And this figure could rise, as 1.5 million cheap mortgage deals come to an end this year, and people look to cut costs as they’re faced with higher rates and the increased cost of living.

“The worry is that without expert advice, some might be distracted by the eye-catching headline rates, without having a real understanding of their cost over time. Costs which could continue to grow as more than half of customers lock in short term two year deals.

“Back in 2022, the FCA introduced new rules for overdrafts — removing fees and charges, so banks could only charge a flat rate. In simplifying overdrafts and making them easier to understand, the FCA estimates that customers are saving between £473 million and £525 million per year§.

“And with a mortgage being a far bigger commitment, we need to see similar action, making them simpler to understand and compare, while offering fair value and delivering better customer outcomes. That way people can make their financial future as safe as houses.”

 Andrew Hagger, founder of Moneycomms adds:

“The mortgage market is a potential minefield for would-be borrowers, with thousands of products and different rate and fee combinations — if you don’t use the services of an independent broker, you can easily come unstuck.

“The best ‘rate only’ or rate plus fee combination isn’t a straightforward choice and you’ll need an expert number cruncher to make sure you get the cheapest deal for your circumstances.

“Your mortgage is the biggest financial transaction that you’re likely to make in your lifetime, so don’t go in blind otherwise you could end up paying way more than you need to in repayments.”