12 April 2017

Are you wasting £2,500 a year on your mortgage?

Oliver Broadhurst

By Oliver Broadhurst

Nearly £3 billion a year is wasted by customers on the wrong mortgage deal. Why is it so hard to see which deal is best for you?

You could be wasting £266 on your mortgage every month, according to L&C Mortgages and our research partners Opinium.

This is because 1.1 million households in the UK are sitting on the wrong mortgage deal for them, with 58% of homeowners having never re-mortgaged to save money.

This is costing consumers a shocking £2.78 billion a year - or £2,500 a year each.

So what’s stopping people from clearly seeing which deal is best for them? An issue close to our hearts here at Fairer Finance - transparency.

Our unique analysis has thrown up a number of truly startling problems with the UK mortgage market. These issues are set so deeply that there isn’t a single provider we rate that does things properly - not even one.

Keeping customers from comparing

The main issue is that providers do not allow customers to compare mortgage deals in the same way they can for credit cards, savings accounts, or personal loans.

Mortgage providers use something called an ‘overall cost for comparison’ to allow customers to compare mortgages. This is written out as an ‘APRC’: the ‘Annual Percentage Rate of Charge’. It basically works the same as APR does for loans and credit cards, while also including the cost of mortgage fees into the overall figure.

But there’s a fundamental flaw with this method.

This comparison takes into account all interest payable on the loan you took out for your house. It also takes into account all the fees involved. It then turns this into a figure which represents the sort of figure you’d be looking at paying across the length of your mortgage - usually lasting two or more decades.

What it doesn’t do is make this same calculation for just the initial offer period.

This is important because it’s usually less costly to be on a fixed-term deal - but they only last for the initial offer period. To get pay the best price, you need to change your mortgage deal once your fixed-term offer period is up. This could even be a different deal with the same provider.

But consumers simply can’t compare these deals, because the APRC applies to the whole mortgage term, not the initial fixed-term period. Even the big comparison sites don’t let you do this, and this problem could be costing you £2,500 a year.

Doing the maths yourself

So what if you commit to crunching the numbers yourself? All you need is the rate for the offer period, and the fees involved in taking out and exiting the mortgage. With these you can create your own APRC which focuses just on the offer period. But there’s a problem.

Firstly, the average customer simply doesn’t have the time to do this. And why should they, considering the providers could make a tool available to allow them to do it.

Secondly, customers usually don’t actually have all the information to do these calculations. The initial rate is always stated, but the fees often aren’t.

Where are the hidden fees?

Out of the mortgage providers rated by Fairer Finance, nearly one in five (19%) don’t state the valuation fees on their websites. On top of this, nearly a quarter (24%) don’t state charges beyond the main product and booking fees. These include closure fees, early repayment charges, re-inspection fees – the vital information required to make an informed decision.

You may be wondering how providers can get away with not including these important fees in the terms and conditions. Well, they simply don’t make the terms and conditions available online.

In every single other sector Fairer Finance analyses, the vast majority of providers make these crucial documents available, even if they’re sometimes not the easiest things to find. The mortgage sector is the only sector in which not a single provider we rate makes these documents available.

How can you find out the full details of the mortgage?

Simple answer: you often can’t. That’s why it may make sense to use a mortgage broker, unless you’re confident with what you’re doing. It adds in extra cost – but a good broker will hopefully pay for themselves by stopping you making simple mistakes.

If you’re going to buy direct, proceed with caution. It’s not impossible to get yourself a good deal – but it’s easy to make mistakes that can cost you thousands over the life of the mortgage.

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