Choosing the best mortgage deal will become easier as major lenders have agreed to start describing mortgage fees in the same way by the end of this year.
Which? and the Council of Mortgage Lenders (CML) have worked together to create a tariff of mortgage charges that will make it simpler for customers to understand fees and compare deals from different mortgage lenders.
Lenders representing 85% of the mortgage market have agreed to use the fee names and descriptions laid out in the tariff on their websites by the end of this year.
Previous research by Which? in 2014 found that mortgage holders were being faced with over 40 different fees and charges from lenders, from set-up costs to arrears fees.
The new tariff, which will allow consumers to compare fees for different mortgages more easily, aims to get rid of mortgage confusion by:
1. Using standard names for mortgage fees: lenders will now use the same names across the board for each type of fee.
2. Using a common format to display mortgage fees: each lender will list fees in the same order, and with the same descriptions, to make comparison easier.
Consumers who have tested out the new tariff said they found it much easier to understand and compare costs than when they used previous fee descriptions provided by lenders.
The tariff will be published in full as part of the Autumn Statement on Wednesday 25 November 2015.
Find out more: mortgage fees – Which? guide to the different charges you may currently pay with your mortgage
Choosing the best mortgage deal
Fees for arranging a mortgage can cost over £2,000, with the average fee currently standing at around £950 – so it stands to reason that when choosing a mortgage, comparing the fees can be as important as looking for a good rate.
For example, let’s assume you wanted to borrow £100,000 from a mortgage lender and were comparing two different two-year fixed-rate mortgages:
- One deal has an introductory interest rate of 2.24% over the first two years and arrangement fees of £295
- The other has a rate of 1.74% and arrangement fees of £1,545
The first deal would actually be £667 cheaper over the first two years, despite its lower headline interest rate.
Find out more: how to find the best mortgage deal
Mortgage lenders are required to show you a mortgage APR when providing information about different deals.
APR is the annual percentage rate of interest, which also includes certain fees – but it is an imperfect measure of what you’ll actually pay.
Making mortgage comparison easier
Since the Chancellor’s Autumn Statement in 2014, Which? and the CML have been working together to improve the transparency of mortgage fees and make it easier for borrowers to choose the best mortgage deals. Which? and the CML will continue to work together to help homeowners and plan to agree a standard comparison method early next year for lenders to adopt in 2016.
Which? executive director Richard Lloyd said: ‘We’re pleased that our work with the CML has resulted in simplified fees and charges. This new approach should make it much easier for people to compare mortgage fees. We hope that all mortgage providers will make these changes as soon as possible.’
The Chancellor George Osborne said: ‘It is important that when people buy a house they are able to make an informed choice so they get the mortgage that is right for them. The CML and Which’s work is an important step forward and will make it easier for borrowers to choose the best deal.’