Mortgages fees have risen sharply in the last six months, largely due to growth in low rate deals that come with hidden costs.
According to research by Moneyfacts.co.uk, the average mortgage fee has gone up from £927 to £967.
The average fixed mortgage fee has also seen a surprising rise over the last six months, going up from £935 to stand at a two-year high of £975.
Rachel Springall, finance expert at Moneyfacts.co.uk, said taking out a low-rate deal may not be as cost-effective as it would first appear, particularly if the borrower is not looking to secure a very large mortgage amount.
“Average mortgage fees are on the rise and this is likely to be due to the appearance of a flux of low rate deals that are accompanied by larger upfront costs. For instance, the six lowest two-year fixed rate mortgages have an average fee of £1,483, which sits some way above the average two-year fixed fee overall of £1,062.”
She pointed out that the lowest rate deal may not necessarily be the most cost-effective one and that there are deals with more manageable fees around.
For example, a borrower with a 25% deposit who wants a £250,000 mortgage could save £3,275 over the lifetime of the mortgage by taking out the lowest two-year fixed mortgage with no fees compared to the lowest two-year fixed rate overall, which has a £1,675 fee.
This is because the borrower would make an initial saving in upfront costs and could then capitalise on the lower standard variable rate of the former deal after the two-year fixed term comes to an end.
“For this reason, it is crucial for anyone looking for a new mortgage deal to not be seduced by the promise of an initially low-rate deal. Working out the overall cost of the mortgage is the best way to ensure that the most cost-effective option is taken, so if anyone finds it difficult to calculate this, they would be wise to seek out an independent financial adviser to help them find the right deal for them,” said Springall.
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