Fixed mortgage fees rocket to two-year high
Mortgage fees are now on the rise, despite the long-running price war, which means borrowers should be even more diligent when working out the cost-effectiveness of a deal, according to Moneyfacts.
The financial information provider said that while mortgage interest rates have become increasingly competitive over the last few years, thanks to low interest rates and government initiatives, arrangement fees have been creeping up.
The last six months have seen a particularly sharp rise in the average mortgage fee, which is now £967, up from £927, and sits just below the average of two years ago. Meanwhile, the average fixed mortgage fee has seen a surprising rise over the last six months to stand at a two-year high of £975.
Rachel Springall, finance expert at Moneyfacts.co.uk, said: “Average mortgage fees are on the rise and this is likely to be due to the appearance of low rate deals that are accompanied by larger upfront costs. For instance, the six lowest two-year fixed rate mortgages have an average fee of £1,483. Taking out one of these low-rate deals may therefore not be as cost-effective as it would first appear, particularly if the borrower is not looking to secure a very large mortgage amount.
“However, borrowers don’t necessarily have to pay these large fees: deals with more manageable fees are around, and there are even some mortgages that come with absolutely no fees at all. This is why it is so important to evaluate the overall cost of the mortgage, including the initial rate, the fees and the revert rate, as over the long term, the lowest rate deal may not necessarily be the most cost-effective one.”
Do your sums
For example, a borrower with a 25% deposit who wants a £250,000 mortgage could save £3,275.08 over the lifetime of the mortgage by taking out the lowest two-year fixed mortgage with no fees compared to the lowest two-year fixed rate overall, which has a £1,675 fee, according to Moneyfacts. This is because the borrower would make an initial saving in upfront costs and could then capitalise on the lower standard variable rate of the former deal after the two-year fixed term comes to an end.
Springall continued: “For this reason, it is crucial for anyone looking for a new mortgage deal to not be seduced by the promise of an initial low rate deal. Working out the overall cost of the mortgage is the best way to ensure that the most cost-effective option is taken, so if anyone finds it difficult to calculate this, they would be wise to seek out an independent financial adviser to help them find the right deal for them.”