The price of arranging a mortgage has risen over the last 18 months, making it harder for consumers to gauge the total costs involved when applying for a loan. Analysis from moneysupermarket.com shows the average application fee has risen by £97 since September 2009, an increase of 14 per cent for fixed products and £118 for tracker products, an increase of 15 per cent,
Traditionally, lenders charged a fee to cover the administration costs associated with providing a mortgage, however, in recent years many lenders have been increasing application and booking fees in order to offer lower headline rates while maintaining margins. These fees can either be charged as a fixed amount or as a percentage of the mortgage amount, sometimes up to 3.5 per cent of the loan size, so it’s important for consumers to understand how this will impact the total cost of the mortgage before applying.
The analysis also shows a rise in booking fees which allow consumers to reserve a mortgage rate offer when their application is agreed upon in principle. The average fee for fixed products has gone up £9 pounds over the past 18 months and £7 pounds for tracker products over the same period.
Clare Francis, mortgage spokesperson at moneysupermarket.com said: “The mortgage market can be a minefield because of the different pricing structures lenders use. In some instances, the lowest headline rate may not actually prove to be the cheapest option because of the other charges borrowers will incur. It’s vital that prospective mortgage customers look beyond the headline rate and dig a little deeper to find out the true cost of the mortgage, otherwise they may end up paying back more than they bargained for.
“On the face of it, low interest rate products might seem like the obvious choice, however, they don’t necessarily offer the best option for consumers. High fees, especially those charged as a percentage of the total amount borrowed, can significantly bump up the cost over the term of the mortgage. Likewise a low application fee will not necessarily lead to a cheaper overall deal: in some cases it may work out cheaper to pay a higher arrangement fee. It will all depend on the amount you are looking to borrow.
“Ultimately there are three key things mortgage customers need to consider – the interest rate, any additional fees and the amount they need to borrow as these will affect the overall cost of the mortgage over the term of the offer. People often forget to look at the total cost and simply focus on the interest rate and what their monthly repayments will be when comparing mortgages. They fail to factor in the impact of the fee. Borrowers need to shop around to make sure they get the right mortgage to suit their needs. If they are unsure about which deal to go for they should ask for help from an independent mortgage broker.”
