Home buyers warned to beware inflated mortgage fees when offered attractive deals
Lenders are upping mortgage fees to levels that are the highest they have been in more than five years, according to new data.
With the latest figures indicating that the average mortgage fee has risen by £15 in the last three months and now stands at £1,005, home buyers are warned to be wary of how fees can bite.
At Finder UK we’ve teamed up with the UK’s leading fee-free mortgage broker, L&C, to provide advice on the mortgage deal that is right for you. Our expertise can help whether you’re buying a home, remortgaging or purchasing an investment property.
It’s wise to be careful because, according to financial information company Moneyfacts, which collated the latest data, while mortgage lenders appear to be concentrating on competing with each other for the lowest rates on the market to attract borrowers, many of them are offsetting their reductions by raising fees instead.
Moneyfacts commentator Charlotte Nelson points out that not only are average mortgage fees rising, but they are now surpassing the £1,000 threshold for the first time since the August of 2013 when the average was £1,001. Nelson describes this as “disappointing” and advises that borrowers need to think twice before making an application for any mortgage, and they should always check the terms and conditions.
The Bank of England has increased the base rate from 0.25% to the current rate of 0.75% since November 2017 but many mortgage rates are being offered much lower than providers’ costs. For example, the average two-year fixed rate currently stands just 0.16% higher than in November 2017 when it was 2.33%.
The table below illustrates the impact fees can have on your payment: it demonstrates that even though the fixed rate is set much lower, the fee-free mortgage product still works out as less expensive in the first year.
|Lender||Rate||LTV||Fees||True cost after 1st year*|
|Yorkshire Building Society||1.34% fixed to 31/12/2020||60%||£995||£10,414.10|
|Yorkshire Building Society||1.71% fixed to 31/12/2020||60%||£0||£9,837.08|
Source: Moneyfacts.co.uk. *True cost based on borrowing £200,000 over 25 years on the basis of repayment-only.
Nelson emphasises that homebuyers should take note that the impact of fees can vary depending on how much is borrowed. For example, she says, a low rate/high fee offer may be perfect for people looking to buy property at the more expensive end of the market. But she warns that for average borrowers who remortgage every two years, fees soon add up and it may be better spending any additional cash overpaying the mortgage.
Taking out any mortgage is a big commitment and should not be rushed into without exploring the available options. That’s why finder UK has designed a page to help you better understand how mortgages work and how to compare the different deals that are out there.