Mortgage borrowers are being urged to look at the cost of the ‘whole package’ not just the rate on new deals after it emerged fees have increased over the last year.
Whilst interest rates on fixed deals have been the subject of much interest over the last year, soaring to a 15-year high and then dropping at the start of the year, the fees being charged have also been rising.
Data from Moneyfactscompare.co.uk show the average product fee currently being charged on a fixed-rate mortgage has risen by £46 since March 2023 and now sits at £1,141.
What fees apply to mortgages and how do they work?
Product fees are just one type of fee which lenders charge. There may also be legal fees and valuation fees.
Whilst some lenders provide incentives to customers by offering ‘free or refunded’ legal or valuation fees – the number of these now on offer has fallen.
Moneyfactscompare said the proportion of the market offering fixed rate mortgage deals with a free or refunded valuation incentive had fallen to 73%, from 75% at the start of March 2023.
Meanwhile the percentage of fixed rate mortgage deals that offered a free or refunded legal fees incentive has fallen to 44%, from 45% at the start of March 2023.
And the proportion of the market offering cashback has dropped by 9% since March 2023, Moneyfacts said.
Not all mortgages carry fees – however, where a mortgage deal is labelled as ‘fee free’ you may find the rate is not as attractive.
Equally, if you see a comparatively low mortgage rate it’s a good idea to check the fee as it could be higher.
Rachel Springall, finance expert at Moneyfactscompare.co.uk, said: “Borrowers concerned about rising fixed mortgage rates would be wise not to rush when comparing deals and ensure they consider the overall true cost package, as the average mortgage fee has crept up.
“There is an abundance of deals to suit different needs, some may be headline-grabbing rates, but these can also charge a high upfront fee.
“The best mortgage will come down to how much someone needs to borrow and for how long, so seeking independent advice to crunch the numbers is wise.
“Those borrowers looking to remortgage right now will find some of the lowest rates will cost them more than £1,000 in a product fee, but a mortgage with a slightly higher initial fixed rate and lower product fee could be a better package based on true cost.”
Rising mortgage rates – look out for lower fees
In the last couple of weeks some mortgage rates have begun to rise again and this has created some instability for borrowers.
In this kind of environment, finding products with lower fees and comparing the entire package on offer could be beneficial.
Springall added: “Even if borrowers lock into a rate that’s slightly higher than what may have been available a few weeks ago, borrowers could still get an attractive package by finding a deal that has some cost-saving incentives, a reasonable product fee, or no fee, and maybe even cashback.”
If you are a first-time buyer make sure you factor fees into your savings or, if you haven’t budgeted for this, consider looking for a deal with a bundle of incentives.
Springall said: “These packages may be more suitable if new buyers have exhausted all their savings on a deposit, removal and furnishing costs.
“The majority of the fixed mortgages on the market will offer borrowers a free or refunded valuation incentive, and just under half of all fixed deals will cover legal fees. Just over a third of fixed mortgages on the market do not charge a product fee, and on those deals that do charge a fee, some lenders can allow borrowers to add it to the mortgage advance.
“These options can save borrowers on the upfront cost of their deal, but it’s vital to be conscious of the true cost of any mortgage before they apply.”
