High Fees Can Cancel Out Low Rates

by Mark Johnston

At a time when the financial climate is already difficult, with many consumers struggling financially, lenders have hiked up the arrangement fees on their mortgage products.

Uswitch, an online comparison source carried out recent research that revealed many Brits are paying too much in arrangement fees. The research published in April 2011 suggests that only 35% of borrowers added their fees to the overall mortgage cost, other borrowers have put these fees on credit cards making yet more debt for them themselves.

Home owners and first tine buyers alike are now being warned not to be ‘taken in’ by knockdown headline mortgage rates as these usually have high fees and thus will leave them with an unexpected debt in their already tight finances.

Moneyhighstreet.com added that “a mortgage is a major undertaking, so borrowers should take time to add up all the costs involved. Along with the deposit, application fees are in some cases needed upfront.

Despite the bank of England base rate being 0.5% to secure an advantageous interest rate on a mortgage of 3.99% borrowers have to pay an arrangement fee of 3% so therefore for an advance of £150,000 approximately £4,500 to £5,200 is added on to it.  

Jonathan Hammond of Hammond mortgages services said that “while he realised the banks are not borrowing at 0.5% a 3% or so margin and a one off 3% or more fee is questionable”.

Research by moneyfacts has shown that the average fee has increased by 17% from approximately £897 to £1,030 in the past year. The highest found on the market at the moment is a staggering £3,800 with Accord which is part of the Yorkshire building society.

Fixed deals mortgages have currently dropped to their lowest ever rates, but banks are sneakily recouping their profits by increasing mortgage arrangement fees.

According to statistics the average arrangement fee now stands at approximately £1,044, this is slightly lower for a tracker mortgage but slightly higher for fixed rate deals.

As application fees for mortgages have risen 17% in the past 2 year it makes the true costs of mortgages difficult to calculate and budget for many borrowers have found.

Research has shown that 2 years ago there were only 22 mortgages that charged arrangement fees of over £750, this amount has rocketed to a staggering 300 mortgages.

With banks also now requiring a hefty deposit, which has also increases in the past months to approximately £34,000 and high arrangement fees, it makes most mortgages unaffordable for many.

Huge arrangement fees seem to be prevalent among residential mortgage lenders, all this so the lender can reduce the initial pay rate.

In today’s competitive mortgage market some financial institutions are using a combination of higher arrangement fees and lower interest rates to manipulate mortgage comparison web sites.

Michelle Slade, spokesperson for money facts said “in many cases a low rate with a high fee can work out more expensive than opting for a slightly higher rate, but with a lower fee”.

Arrangement fee are just one more of the many charges that have rocked over recent months, as the global credit crunch continues to wreak havoc in the financial markets and lenders continue to pass on various rising costs to borrowers.

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