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While mortgage rates have stayed remarkably low given the recent base rate increase, lenders appear to be offsetting this competitive streak by upping mortgage fees. Indeed, the latest Moneyfacts.co.uk figures show that the average mortgage fee (excluding fee-free deals) has risen by £15 since August to stand at £1,005 this month.
"It is disappointing news that the average mortgage fee is not only on the increase, but it is the highest it has been in over five years, surpassing £1,000 for the first time since August 2013 (when the average stood at £1,001)," commented Charlotte Nelson, finance expert at Moneyfacts.co.uk.
|Average mortgage fee (excluding fee-free deals)||£1,018||£967||£997||£1,005|
Providers seem to be focusing solely on competing for the lowest rate on the market, to attract the many borrowers likely still considering whether or not to remortgage after the recent Bank of England rate rise. However, due to that same rise, their costs have gone up. The way some providers have chosen to deal with conundrum is to raise fees instead.
"Despite the Bank of England increasing the base rate twice since November 2017 – from 0.25% to the current rate of 0.75% – mortgage rates are still far lower than providers' costs," Charlotte explained. "For example, the average two-year fixed rate only stands 0.16% higher than it did in November 2017, increasing from 2.33% to 2.49%. By increasing fees, providers are making a small attempt to recoup some of this extra cost."
Although lenders may be benefitting from this flexibility in their offering, it also means borrowers should think twice before applying for a mortgage, and always check the terms and conditions. The table below illustrates the difference a fee can make: even though the fixed rate is much lower, the fee-free mortgage product works out as cheaper in the first year.
|Lender||Rate||Max LTV||Fees||True cost after one year*|
|Yorkshire Building Society||1.34% fixed to 31/12/2020||60%||£995||£10,414.10|
|Yorkshire Building Society||1.71% fixed to 31/12/2020||60%||None||£9,837.08|
"It is important to note that fees can vary in impact depending on how much you borrow, with the low rate/high fee scenario ideal for those looking to purchase properties at the higher end of the market, for instance," said Charlotte. "However, for the average borrower who remortgages every two years, the fees can soon add up and this additional cash could be better spent overpaying the mortgage."
So, when you're looking through the mortgage Best Buy charts, don't forget to click on the 'Details' button to see what fees are attached to the deal(s) you're interested in. Luckily, the APRC mentioned in the charts takes these fees into account, making it fairly easy to compare different mortgages like-for-like.
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