Mortgage deals aren’t as good as they seem

Fancy a new mortgage? Run your eyes down the best-buy tables and you might think it rather a good idea. After all, they look pretty cheap. Nationwide has just launched the cheapest ever mortgage rate for those with only a 5% deposit, at 2.5% (as part of the Help to Buy scheme). First Direct has a five-year fix at 2.49% and Tesco appears to have taken competition to an extreme with a two-year fix at 1.74%.

However, even at that price it isn't winning the rate war: Chelsea Building Society has a two-year fix for you (assuming you have a completely clean credit rating, of course) at 1.69%.

Overall, says Lucy Warwick-Ching in the Financial Times, thanks to the subsidy provided by the Bank of England's Funding for Lending scheme, the average cost of a two-year fix has come down from 4.21% to 3.28% in the last year, while that for a five-year fix has fallen from 4.67% to 3.84%. Hooray.

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However, if you look a little closer you will see that inevitably, given that we are dealing with the British financial services industry here none of these deals are as cheap as they sound. The average booking' fee on a two-year fix is now £1,393 with some coming in way above that. The Chelsea two-year fix mentioned above comes with a £1,675 upfront fee, for example.

That makes it much less competitive than it sounds. So much so, says Martin Lewis on Moneysavingexpert.com, that anyone borrowing less than £220,000 on a repayment basis for 25 years would be better off bypassing it and perhaps looking for a lower fee mortgage even if it comes with a higher rate.

Calculations from John Charcol for The Sunday Times come to a similar conclusion, by comparing the Chelsea offer with one from Norwich and Peterborough that comes with a headline rate of 2.24% but a much lower fee £294. Those borrowing more than £170,900 will be better off with Chelsea. Those borrowing less will be better off with Norwich and Peterborough.

You will be shaking your head sadly by now and with good reason. There is a fundamental disconnect in the financial industry between client and provider. All most of us want is a transparent and easy way to compare the prices of financial products. All our providers want is to avoid just that the more confusion they create, the more likely they are to be able to keep making supernormal profits indefinitely. It keeps us all in a constant state of war, trying to work out where the catches in our products are. And it's very boring (unless you are ever the recipient of a supernormal bonus, of course).

However, one piece of good news is that Moneysavingexpert.com has on its website The Ultimate Mortgage Calculator', a nifty gadget that allows you to compare the cost of mortgages, including their fees, over various time frames. A nice weapon to have in your armoury if you are in the market for a new mortgage.