The cheapest mortgages now come with up-front fees of as much as £1,500, as lenders battle to offer table-topping rates.
Average mortgage fees have risen to more than £1,000 in recent months, but we've found lenders are charging significantly more on their 'cheapest' deals.
Here, Which? explains why fees have jumped, and offers advice on how to compare mortgage deals.
Mortgage rates have fallen in recent months, marking good news for home buyers and people looking to remortgage.
There are signs, however, that lenders are making their money elsewhere, in the form of high up-front fees.
New data from Moneyfacts shows the average mortgage fee has risen by £57 year-on-year, to reach £1,075.
This is slightly down on the £1,081 recorded two months ago, which was the highest average since 2012.
There are also signs that lenders are moving away from fee-free deals - 35% of deals currently on the market are available fee-free, compared to 40% a year ago.
When people compare mortgages, the first thing they see is the initial rate.
With this in mind, lenders are battling to offer market-leading rates at a time when the property market is booming.
This is especially the case with low loan-to-value (LTV) mortgages. Last month, several banks launched 60% LTV mortgages with rates below 1%, the first time we've seen that happen since 2017.
It was once common to see the cheapest deals come with fees of just under £1,000 (usually £995 or £999), but we're now increasingly seeing chart-topping mortgages with fees of £1,495, £1,499 or even £1,999.
Eleanor Williams of Moneyfacts says: 'Lenders may be raising fees to gain margins in the aftermath of a fixed-rate war, and this may also potentially be linked to the resurgence of sub-1% mortgages as, whilst eye-catchingly low, these initial rates can also carry the highest fees.
'Borrowers may need to search a little harder if they are looking to keep mortgage costs to a minimum or secure a fixed-rate mortgage without a fee.'
We've analysed data from Moneyfacts to show how much lenders are charging up-front on table-topping deals.
The chart below shows the average mortgage fee on the top 10 lowest-rate deals at five loan-to-value levels.
As you can see, high up-front fees are more of an issue at lower loan-to-value levels, where lenders are scrambling to offer ever-cheaper rates. At 60% loan-to-value, the cheapest two-year fixes come with fees averaging nearly £1,500.
High fees mean it's sometimes better to ignore the 'cheapest' deal and instead choose one with a slightly more expensive rate.
If you're looking for a two-year fix at 60% loan-to-value, choosing HSBC's 1.24% deal rather than Platform's 0.95% deal will actually save you money over the two-year period.
The monthly payments on HSBC's deal are £26 more than Platform's, but the lack of an up-front fee (compared to £1,499 from Platform) means you'll save £865 over two years.
|Lender||Initial rate||Up-front fee||Cost per month||Cost over two years|
When it comes to choosing a mortgage deal, much is down to your own circumstances.
For example, saving £800 by choosing the higher rate above might seem like a no-brainer, but some borrowers may prefer to pay an up-front fee in exchange for the lower monthly payments.
This is particularly the case when it comes to deals with smaller fees, such as £499 or £999. In these instances, there may be little to choose in the overall cost of borrowing.