When you are shopping around for a new mortgage it is important to take two factors into account. Firstly, you should look at the interest rate that you will pay; and secondly you should look carefully at any associated arrangement fee.
New research has found that building societies charge, on average, lower arrangement fees than banks for their mortgage deals. So when choosing your next mortgage, should you turn to a mutual lender?
Research from the comparison website MoneySupermarket.com has found that there is a big difference between the arrangement fees attached to mortgage products despite the average two-year fixed-rate mortgages from building societies and banks being similar (4.15% and 4.22% respectively).
The Daily Telegraph reports that "overall, building societies offer much lower arrangement and booking fees which could help to save consumers over £700 over the term of the mortgage deal". For example, the difference between the top rate for a two-year fixed mortgage with a 90% loan-to-value from First Direct and Chelsea Building Society is 0.2%. However, when you take the fees into account, you will save £1,000 by taking the First Direct deal.
The newspaper reports that "this is more marked with five-year fixed-rates where opting for NatWest's mortgage rather than that from Chelsea Building Society could result in a saving of £3,500 over the term of the deal".
Clare Francis, mortgage expert at MoneySupermarket.com, said: "Don't just go to the big banks as there are some great deals available from smaller lenders too and it's really important to get the best product as it could literally mean the difference in cost of thousands of pounds. It can work out cheaper to opt for a product with a higher rate in return for lower set up costs - it will depend on the size of the loan. Therefore when comparing mortgages you need to calculate the total amount you'll pay over the term of the deal - monthly repayments plus fees - in order to work out which will be the best value for you."
Keith Osborne from whathouse.co.uk says: "This research shows that it can be cheaper to get your home loan through a building society than a bank and it highlights the need to take any arrangement fees into account when you choose a mortgage deal. For example, on a £100,000 mortgage it is actually better to take a two-year fixed-rate deal at a 0.2% higher rate than it is to pay a £500 higher arrangement fee. While it may seem counter-intuitive to pay a higher interest rate, it could actually save you money."