Borrowers are being urged to check the full price of any mortgage deals they sign up to as, whilst mortgage rates of below 4% are emerging on the market, often these also have higher fees.
According to new analysis by Moneyfactscompare.co.uk the average mortgage fee has risen by £89 since March 2020.
A fee is a one-off payment which lenders charge in addition to interest on mortgage products. Not all mortgages come with fees – but fee-free products tend to have slightly higher interest rates than those with fees.
Moneyfactscompare’s research on fees has only taken into account those products which charge fees. It said, whilst average fees have risen by £89 since March 2020, in the last year they have dipped slightly, by £11.
However, in the same time period – between March 2020 and now – mortgage rates have also increased significantly. It means anyone exiting a five-year deal now will not only face higher rates but also bigger fees.
What’s more, Moneyfactscompare revealed, the proportion of deals which have cashback has also fallen since March 2020.
However, the good news is there are slightly more deals with a free or refunded valuation incentive.
Rachel Springall, finance expert at Moneyfactscompare.co.uk, said: “Borrowers who locked into a cheap fixed rate in 2020 and are looking to refinance will find mortgage fees have been on the rise.
“Outside of headline-grabbing low rates, borrowers need to check the overall cost of any mortgage, which includes any fees or cost-saving incentives.
“The best deal depends on someone’s circumstances and how much they need to borrow; someone with a larger debt would typically chase a lower rate, whereas those looking to avoid upfront costs would consider fee-free deals and incentives.
“The lowest fixed mortgages on the market typically charge upfront fees of around £1,000, or even up to £2,000, so a mortgage with a slightly higher initial fixed rate and lower product fee could be a better choice.”
How to obtain the best price
Springall said there was still ‘an abundance’ of deals with cost-saving incentives – for example, free valuations.
“Borrowers coming off a fixed deal may have to face higher mortgage rates this year,” she said, “but they can still find an abundance of deals with cost-saving incentives, and it’s still cheaper to refinance onto a fixed rate than reverting onto a Standard Variable Rate (SVR).
“More often than not, borrowers can find a deal with a free or refunded valuation incentive, and just under half of all fixed deals will cover legal fees.
“Those looking to remortgage will likely want to keep costs down and refinance without too much effort, so mortgage bundles are a great choice to avoid the worries of covering upfront fees.
“First-time buyers may also have exhausted all their disposable cash on a deposit, removal and furnishing costs, so a cashback deal with a bundle of incentives could be ideal.
“Lenders could also add upfront fees to the mortgage advance, so it’s wise for borrowers to seek advice to navigate all the options available to them before they commit.”
