Mortgages: don’t fall for alluring headlines
Thanks to the increasing complexity of mortagage products, it's getting harder to work out where the best deals are. James McKeigue reports.
Our banks and building societies are coming up with ever more creative ways to make headlines and grab the best mortgage business. This is both good and bad news for homebuyers.
This week it was the turn of the Halifax, which offered to cover the cost of stamp duty for first-time buyers. The bank, which is part of taxpayer-backed Lloyds Banking Group, says it will pay up to £2,500 to cover the 1% tax on house purchases of between £125,000 and £250,000.
The offer is available for applications made up until 7 July 2013, and will apply across the Halifax mortgage range. That could be good news for those who do their homework on rates and move fast enough to secure a loan.
Halifax currently offers a two-year fixed-rate mortgage at 3.24% for a loan of up to 80% of the value of a property (LTV). Until this offer came along, Halifax lagged the West Bromwich Building Society best buy on an 80% LTV deal of 2.75% with a product fee of £748, but now it beats it, given there is no Halifax fee and you'll avoid stamp duty.
The same is true for an 85% LTV loan where the best buy is the Post Office with a rate of 3.49% no match for the Halifax 3.79% loan once you knock off the stamp duty. But if you only have a 10% deposit it's a close call between the Halifax 4.49% offer with a £995 fee and the Yorkshire Building Society 3.99% deal with a £475 fee. The latter just wins.
Therein lies the bad news for buyers nowadays it's getting increasingly hard to work out where the best deals are. As the government's Funding for Lending scheme kicks in, which gives banks and building societies access to cheap finance, many are now starting to offer homeowners extra incentives.
Norwich and Peterborough (N&P) Building Society offers a free basic valuation, a £200 cashback for buyers and a relatively low mortgage fee of £225 on its two-year 2.24% mortgage. That beats the Chelsea Building Society's market-leading 1.74% rate, which comes with a much bigger fee and no rebates.
The array of different incentives on offer makes it difficult to compare the overall cost of different mortgages. For example, as Victoria Bischoff notes on Thisismoney.co.uk, "the cost of having a valuation [a more and more common "freebie"] depends on the individual lender, the amount of detail the survey goes into, and how much your property is worth".
And, as the Halifax has just proved, lenders are getting creative when it comes to cooking up new ways to grab the headlines. Our advice is to be careful to compare the true cost of any deal, factoring in all costs and benefits, and don't just be drawn in by the latest headline-grabbing offer.