What’s the deal?
Co-op’s two-year fixed rate deal is at 1.09%. If you’re remortgaging, you’ll benefit from a free valuation and legal work. And if you're an existing current account customer with Co-op who doesn't hold a Co-operative Bank or Britannia mortgage, you’ll get £250 cashback.
But like many low-rate mortgages, there’s a sting in the tail in the form of a hefty £1,499 arrangement fee.
And you’ll only qualify for this deal if you can stump up a steep 40% deposit, or if you have the equivalent amount in equity in your home if you are remortgaging.
David Hollingworth, of mortgage brokers London & Country, said:
“As always, it’s important for borrowers to pause for a moment before plumping for this deal just because it comes with the lowest rate.
“Other than the need for a large amount of deposit or equity it also carries a fee of almost £1,500. This could weigh heavy on the overall value of the deal, particularly if your mortgage is on the smaller side – although remortgage borrowers do benefit from free valuation and legal work.”
The steep arrangement fee is the biggest downside of this deal (and bear in mind this pays for only two years of a fix rather than three or even five years).
But as our mortgage best buy tables, are ordered by rate – lowest at the top – the Co-op deal is featured first. So you will need to factor in the high fee and find the true cost of the deal to find out if it’s right for you. Here’s how you do it:
-Find out what your monthly mortgage payments will be using a mortgage calculator
-Multiply this figure by the number of months the deal lasts for (in Co-op’s case 24)
-Add the fee on top
-This gives you the true cost of the deal over the term
Repeat for the next best comparable deals
This calculator from MoneySavingExpert will do the sums for you.
By doing this, it becomes clear that the lowest rate doesn’t always mean the cheapest deal. Take the below true cost calculations across four similar 2-year fixed rate mortgages. Each is based on a £150,000 repayment loan taken over 25 years.
As you can see, at borrowing of £150,000, the cheapest from these comparable two-year fixes, is NOT the deal with the lowest rate. It’s Tesco Bank’s mortgage which comes with a 1.59% rate but a pretty negligible fee of £195.
Total cost over 2 years: £15,214
Total cost over 2 years: £14,878
Total cost over 2 years: £14,856
Total cost over 2 years: £14,739
Who’s it good for?
However, the bigger the loan amount becomes, the more sense it makes to pay your way into Co-op’s lower rate. In this case though, you’d have to borrow £465,000 or more for it to make sense against the next highest rate, offered by West Brom, over that two-year term.
Based on borrowing of this size, the cost over two years of the Co-op deal would be £43,191, but £43,192 with the West Brom deal.
HOWEVER! This assumes you’d even be able to borrow such a large sum. While there’s no maximum loan amount on Co-op’s deal, West Brom imposes a cap of £250,000.
But David Hollingworth said; “Even at a maximum loan of £250,000, the West Brom rate will cost less overall, at £24,131 over two years versus £24,357 for the Co-op rate.”
What’s the verdict?
Co-op’s low rate can’t be beaten, but it’s certainly not the cheapest deal once fees are factored in, unless you’re planning on taking out a hefty mortgage. NEVER just be swayed by the lowest fixed mortgage rate you can find.
Whichever mortgage you’re planning on applying for, it’s always a good idea to get a copy of your credit report first.
This will give you a good idea of how likely you are to be accepted, and enable you to see whether there are any mistakes on it which need correcting.
Please note: any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.