by Mark Johnston
While the record low bank rate of just 0.5% has pushed down the interest rate on home loans, mortgage providers have raised their fees by an average of £321.
Recent research has shown that mortgage arrangement fees have increased 25% to an average of £1,502 in just 3 years.
It seems that no more is the ‘so called’ arrangement fee the cost of arranging the product plus a reasonable mark up for overheads and profits. It is now an amount which lenders wish to charge to cover the perceived risk to a lender should a borrower default on their payments.
Many experts feel that in the past lenders would charge a fee to cover the costs they incurred administering the mortgage, but in today’s climate many lenders rely on these fees to bring in extra revenue.
In the excitement of buying a house, it is easy to ignore arrangement fees and this could then be a costly mistake. These now huge bills can definitely be a ‘sting in the tail’ as borrowers search to find the most competitive deals on the market.
In light of this, borrowers are now being urged to take in to account not just the interest rate but the arrangement fee as well when finally choosing their best mortgage deal. By working out the total cost of a deal, consumers can see if it is better to opt for a higher rate with a lower fee or a lower rate with a higher fee.
The fee can be particularly important to those looking for short term deals where the cost is only spread over a 2 year or 3 year period rather than 5 years or more.
Fees can vary significantly from lender to lender, deal to deal, but in general the lower the interest rate the higher the fee. These variations have made it increasingly more difficult for consumers to compare deals like foe like.
Nearly all mortgage deals now come with some kind of arrangement fee, but in most cases this can be added to the loan amount if the borrower wishes; therefore meaning they do not have to find this amount as well as the high deposit also required.
However, borrowers should be aware that if they decided to do this then interest is payable on the full amount, for example; if the mortgage was for £120,000 interest is paid on this amount, if the borrower then adds the fee of say £1,000 to the loan then interest is paid on £121,000 for the duration of the loan.
Although, the Council of Mortgage Lenders (CML) has stated that “there is still plenty of fee free mortgages available to borrowers”. Comparison websites have shown that there are approximately 343 fee free deals on the mortgage market currently.
On a brighter note, data fro, moneyfacts.co.uk, a comparison website, shows that 3 years ago the average deposit required to purchase a property was around 40%, the average deposit now required is just 25%.
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