by Mark Johnston
It seems that currently many home buyers are able to access historically low mortgage rates, but at a cost of rising arrangement fees.
Many cash strapped home owners and first time buyers alike are now feeling the pressure as mortgage fees soar by almost 70% in the last year alone.
This rise in fees also comes at a time when official figures reveal that the number of people actually buying a home has all but collapsed since the financial crisis began. Figures show that just 869,000 people bought a home last year.
On top of arrangement fees lenders also charge for legal fees and valuation fees, all of which added up amount to a substantial bill.
In the excitement of buying a house, it is easy to ignore arrangement fees and this could be a costly mistake.
Mortgage experts are now urging people to look at the whole cost of a deal before making a decision, rather than being lured purely by a low rate.
Sylvia wood, spokeswoman for Moneyfacts, a comparison website, suggests that now “researching the best mortgage deal should not just include the headline rate but also set up charges and the incentives offered, such as free legal fees”.
Mortgage fees on a whole have soared by around £600 over the last year. A typical mortgage arrangement fee currently is approximately £1,498, this is therefore equal to nearly a months take home pay for the average worker in Britain and is up from £889 in 2010, Moneyfacts the comparison website found.
Surprisingly, home buyers holding the biggest deposits are now facing the steepest increases in fees, thus means that the rise in fees for first time buyers tends to be smaller.
Figures show that the average fee for a 60% loan to value (LTV) mortgage has risen by 42% to approximately £1,562. Borrowers with a 25% deposit also face a 65% rise, with typical fees therefore standing at £1,599.
However, those borrowers opting for 90% and 95% loan to value (LTV) mortgages have seen their arrangement fees rising by just 11% to around £893 and £995.
Some experts believe that the ‘so called’ arrangement fee is no longer the cost of arranging the product plus a reasonable mark up for overheads and profits. It is now an amount of money to cover the perceived risk to the lender should borrowers default on their payments.
A spokesman for the Council of Mortgage Lenders said “there is still plenty of lower fee or fee free mortgages available for borrowers who prefer this option”.
Some mortgage websites have shown that there are approximately 343 fee free mortgage deals on the market currently, which is up from the 283 deals on the market a year ago.
Financial experts believe however, that ‘very little is for free and no arrangement fee generally means a higher overall loan rate.
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