Remortgage shoppers 'fixated on rates'

Tuesday, 18 December, 2007

Homeowners looking to remortgage are shopping round for the best rates, but ignoring fees.

Only 40 per cent of homeowners say fees are important when choosing a remortgage deal – with 74 per cent ready to focus solely on interest rates, new research by moneysupermarket.com reveals.

"It's of grave concern that homeowners are placing most importance on low interest rates. With fees having shot up over the past 12 months, people need to factor in the true cost of a mortgage rather than be tempted by the rate," said Louise Cuming, head of mortgages at moneysupermarket.

"For example, someone with a Yorkshire Building Society mortgage at 4.99 per cent would pay £1,200 more over two years than someone with Britannia at 5.94 per cent."

She added: "It’s almost natural instinct for borrowers to believe a lower interest rate is better, but that isn't always the case."

However, the good news is homeowners are now ready to shop around for a mortgage deal – with only 21 per cent sticking with their current provider and 60 per cent choosing their last mortgage by comparing several options from different providers, searching online or going to a broker.

Meanwhile research by Abbey shows when remortgaging, a third of borrowers will opt for fixed-rate mortgages.

Even though interest rates are predicted to fall, 14 per cent of homeowners would choose a five-year fix and six per cent would plump for a ten-year fix.

The main reason for choosing a fixed-rate mortgage was wanting to know future outgoings.

However, data from online mortgage company mform.co.uk suggest a discount rate mortgage would be better value than a fixed-rate deal.

Francis Ghiloni, mform business development director, said: "Based on true cost discount rates are already better value for borrowers but if, as expected, rates do drop next year they will become even better value.

"The money markets are banking on rate cuts and lenders are pricing appropriately. Our advice would be that anyone remortgaging should consider discount rates ahead of fixed rates."

He added: "Of course those on tight budgets may still want to opt for the certainty of fixed rates ahead of the possible risk of variable rates. Everyone though should be focusing on the true cost of their loan and should not look simply at the rate."

Source: http://www.myfinances.co.uk/news/