The Maze of Mortgage Fees
The amount that mortgage companies charge for administering and arranging a new mortgage has gone up by 100% since 2006. Uncapped fees have inflated by about five times their value since this time last year.
Householders applying for a mortgage can now expect to pay an average of £827 in arrangement fees, up from £634 in November last year and nearly twice the £441 charged in 2005, according to an independent financial information group.
10% of mortgages from the big lenders apply fees, which are a percentage of the amount being borrowed. These are known as uncapped and they have ballooned by a factor of five during the past year. There were just 110 different mortgages using this charging method in November last year compared with 506 at this time.
The range of the uncapped fees is very wide with 0.2% of the amount borrowed at he lower end but as much as 3.5% at the top.
This means a householder borrowing the average £130,000 mortgage with a 3.5% arrangement fee would be charged an unbelievable £4,550 for the same arranging and administration as a fixed fee mortgage.
The high fees are often hidden in the loan itself and will add further pressure to borrowers coming off fixed-rate deals and are having to find money for higher interest rates.
The best fixed-rate deals available are typically 1% above the rates currently paid by homeowners who took out their mortgage two years ago. In addition to this people may be facing arrangement fees running into four figures.
The best advice for those looking for a mortgage, is to look at the total package and not just the headline interest rate. The soaring arrangement fees make this more vital than ever.
The high fees also make it increasingly complex and difficult for borrowers to find the best value mortgage deal for them out of the 6,000 or so loans available. Many lenders apply high arrangement charges to their market leading rates, while also offering deals with higher interest rates but lower fees. Around 24% of all mortgages still did not charge an arrangement fee.
Unfortunately for borrowers the headline interest rate tends to attract all of their initial attention while not taking full consideration of the absolute cost of the deal. Providers to some extent take advantage of this by offering a wide range of low-rate, high-fee deals.
The bottom line is to get advice from a good mortgage broker.
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