Competition in the mortgage market has sent the number of products available to new heights, but with over 4,500 mortgages for borrowers to choose from, it's unsurprising that those seeking the most cost-effective deal can become confused by the array of choice available.
Assessing the overall value of a mortgage is becoming even more crucial, and that means more than looking at the headline rate. It's important to read between the lines (or in the small print) and consider everything from the incentives to the fee, the latter being particularly pressing, as our latest research shows that borrowers are now stumping up more cash to arrange a mortgage.
In fact, the average mortgage fee today (£956) has now hit a 21-month high, being the highest recorded since May 2014 when the figure stood at £973. The table below shows the evolution of mortgage fees in more detail: they fell dramatically in 2014 before fluctuating thereafter, but over the last year they've seen a definite uptick, with today's figure being a full £68 higher than in June 2014.
"The current mortgage market boasts some of the lowest rates on record, which is great news for borrowers, but the increase in average mortgage fee clearly shows that some of these headline-grabbing rates are being compensated for elsewhere," explained Charlotte Nelson, finance expert at Moneyfacts.
"Some of the fees borrowers are being asked to pay are nothing short of shocking, with up to £7,499 being charged for some high-value loans. While arrangement fees allow lenders to offer a lot more flexibility within their ranges, the cost of administering the mortgage does not vary that greatly from one case to the next, which could lead many to wonder why there is such a big difference between the fees charged and why they are even charged in the first place.
"It's certainly great news that the Council of Mortgage Lenders (CML) is involved in looking at the consistency in the market to help borrowers when they compare fees, but this will have no impact on the amount charged.
"Both providers and borrowers are keen to focus on the interest rate, which could mean that the costs of a large fee are not factored in. But high fees can have a big impact on the cost-effectiveness of a deal, particularly when they are added to the mortgage advance, which increases the amount borrowed and pushes up the size of the monthly repayments.
"In the current low-rate market, borrowers are being counselled to switch deals once their fixed rate comes to an end, but large fees can make moving to a new deal a costly affair, particularly if borrowers prefer shorter-term mortgages. Borrowers would therefore be wise to look at the true cost of the mortgage, taking into account any fees and incentive packages, to ensure that the most cost-effective deal is obtained."
Compare mortgage rates – but make sure to look at the fees!
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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