Mortgage arrangement fees 'have doubled'Moneyfacts highlights rise over last two years

29 November 2007

A row of terrace houses

All homes with 4 or more bedrooms will now need a HIP

The average mortgage arrangement fee has nearly doubled in the past two years, while home loans which charge uncapped fees have soared five-fold in 12 months, new figures show.

Homeowners taking out a mortgage now pay an average of £827 in arrangement fees, up from £634 in November last year and nearly double the £441 charged in 2005, according to financial information group Moneyfacts.co.uk.

At the same time, nearly one in 10 mainstream mortgages charges fees which are a percentage of the amount being borrowed.

Uncapped fees soar

The number of these uncapped fees soared nearly five-fold during the past year, with just 110 different mortgages charging them in November last year compared with 506 now, MoneyExpert.com said.

The percentage fees range from as little as 0.2% of the amount borrowed to as much as 3.5%.

This means a homeowner taking out an average £130,000 mortgage with a 3.5% arrangement fee would face a massive charge of £4,550 just for arranging their home loan.

Pressure

The high fees will add further pressure to homeowners coming off fixed-rate deals who are already being hit by higher interest rates.

The best fixed-rate deals available are around 1% higher than the rates currently paid by homeowners who took out their mortgage two years ago, and on top of this people could also face arrangement fees running into thousands of pounds.

Teresa Fritz, finance expert at Which?, said:'We've always said that if you're looking for a mortgage, it's vital to look at the overall cost, not just the headline interest rate. This new research underlines the message, and it's more important now than ever since these extra costs have risen. 

'By pushing up extra costs on mortgage products, maybe lenders are trying to claw back profit they're losing from other areas of the market, such as overdraft charges.' 

Which? runs an online mortgage calculator to help people who want to switch mortgage find the best deal for them.

Fixed rates

David Knight, mortgage analyst at Moneyfacts.co.uk, said: 'Thousands of borrowers coming off a two-year fixed rate will be bracing themselves for higher interest charges, with the best deals over 1% higher than in 2005.

'But they will also need to prepare themselves to pay much higher fees, with the average fee rising 100%.'

The high fees also make it increasingly difficult for borrowers to find the best mortgage deal for them out of the 6,000-plus loans available, as many lenders apply high arrangement charges to their market leading rates, while also offering deals with higher interest rates but lower upfront fees.

'Maze'

Mr Knight said: 'The increase in fees may not automatically mean that the cost of the deals has increased. What it does mean is the maze which borrowers need to navigate to get the best deal has become more complicated.

'Unfortunately too many borrowers still focus their initial attention on getting the best rate, without taking full consideration of the true cost of the deal. Providers to some degree exploit this by offering a wide range of low-rate, high-fee deals.'

But he added that around 24% of all mortgages still did not charge an arrangement fee.

Next year Which? will be investigating all the fees associated with taking out a mortgage.