Print friendly version 17 Apr 2008

Borrowers double set-up fees

Mortgage borrowers pay £8.7bn more than is necessary by adding fees onto their mortgage, according to uSwitch.

Research from the online switching service found that almost eight milllion people have added arrangement fees onto their mortgage instead of paying upfront. In some cases, this can double the cost of the initial fee.

uSwitch found that the average mortgage set-up fee is £987, however if this is added on to a mortgage, the amount could more than double to £2,094. This allows mortgage lenders to rake in an additional £8.7bn on set up fees alone.

More than 2.5 million people – 32% of current mortgage borrowers – added fees to their mortgage upon the advice of a mortgage advisor. However, almost 900,000 borrowers added the fees to their mortgage without realising they had agreed to it.

Ann Robinson, director of consumer policy at uSwitch, said: “Adding fees to a mortgage means that you will be spreading the amount over many years and paying interest for the pleasure of doing so - this is an extremely expensive option and should always be seen as a last resort. If you can in any way manage to pay the fee upfront this will always be your best option. Otherwise buyers should make sure that they make regular overpayments to minimise the impact of high interest costs - as they could end up doubling the original cost of an arrangement fee.

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